Retail Stocks

CVS Health Corp Valuation – March 2017 $CVS

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Stocks for Using A Benjamin Graham Value Investing Strategy – March 2017.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how CVS Health Corp (CVS) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): CVS Health Corporation, together with its subsidiaries, is an integrated pharmacy healthcare company. The Company provides pharmacy care for the senior community through Omnicare, Inc. (Omnicare) and Omnicare’s long-term care (LTC) operations, which include distribution of pharmaceuticals, related pharmacy consulting and other ancillary services to chronic care facilities and other care settings. It operates through three segments: Pharmacy Services, Retail/LTC and Corporate. The Pharmacy Services Segment provides a range of pharmacy benefit management (PBM) solutions to its clients. As of December 31, 2016, the Retail/LTC Segment included 9,709 retail locations (of which 7,980 were its stores that operated a pharmacy and 1,674 were its pharmacies located within Target Corporation (Target) stores), its online retail pharmacy Websites, CVS.com, Navarro.com and Onofre.com.br, 38 onsite pharmacy stores, its long-term care pharmacy operations and its retail healthcare clinics.

CVS Chart

CVS data by YCharts

[level-free]
To read the details of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.

Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Recent valuations of the components of the Dow Jones Industrial Average are available for free members, including this one of Microsoft Corporation.  In addition, here is a post detailing what can be found within each individual company’s valuation.

Learn More About Premium Membership

[/level-free]
[not-level-free]

Downloadable PDF version of this valuation:

ModernGraham Valuation of CVS – March 2017

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $79,961,439,547 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.18 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 112.33% Pass
6. Moderate PEmg Ratio PEmg < 20 15.91 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.30 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.18 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 5.35 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

EPSmg $4.94
MG Growth Estimate 9.17%
MG Value $132.67
Opinion Undervalued
MG Grade B+
MG Value based on 3% Growth $71.68
MG Value based on 0% Growth $42.02
Market Implied Growth Rate 3.70%
Current Price $78.63
% of Intrinsic Value 59.27%

CVS Health Corp qualifies for both the Defensive Investor and the Enterprising Investor. The Defensive Investor is only initially concerned with the low current ratio. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $3.07 in 2013 to an estimated $4.94 for 2017. This level of demonstrated earnings growth outpaces the market’s implied estimate of 3.71% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into CVS Health Corp revealed the company was trading above its Graham Number of $67.31. The company pays a dividend of $1.7 per share, for a yield of 2.2%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 15.91, which was below the industry average of 50.09, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-24.64.

CVS Health Corp performs fairly well in the ModernGraham grading system, scoring a B+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$24.64
Graham Number $67.31
PEmg 15.91
Current Ratio 1.18
PB Ratio 2.30
Current Dividend $1.70
Dividend Yield 2.16%
Number of Consecutive Years of Dividend Growth 14

[/not-level-free]

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2016
Total Current Assets $31,042,000,000
Total Current Liabilities $26,250,000,000
Long-Term Debt $25,615,000,000
Total Assets $94,462,000,000
Intangible Assets $51,760,000,000
Total Liabilities $57,632,000,000
Shares Outstanding (Diluted Average) 1,079,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $5.80
Dec2016 $4.90
Dec2015 $4.63
Dec2014 $3.96
Dec2013 $3.74
Dec2012 $3.02
Dec2011 $2.57
Dec2010 $2.49
Dec2009 $2.55
Dec2008 $2.18
Dec2007 $1.92
Dec2006 $1.60
Dec2005 $1.45
Dec2004 $1.10
Dec2003 $1.03
Dec2002 $0.88
Dec2001 $0.50
Dec2000 $0.92
Dec1999 $0.78
Dec1998 $0.48
Dec1997 $0.10

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $4.94
Dec2016 $4.36
Dec2015 $3.92
Dec2014 $3.43
Dec2013 $3.07
Dec2012 $2.68
Dec2011 $2.45
Dec2010 $2.31
Dec2009 $2.13
Dec2008 $1.83
Dec2007 $1.57
Dec2006 $1.34
Dec2005 $1.13
Dec2004 $0.94
Dec2003 $0.85
Dec2002 $0.74
Dec2001 $0.64

Recommended Reading:

Other ModernGraham posts about the company

CVS Health Corp Valuation – December 2015 Update $CVS
22 Companies in the Spotlight This Week – 11/29/14
CVS Health Corporation Annual Valuation – 2014 $CVS
10 Companies in the Spotlight This Week – 11/30/2013
ModernGraham Valuation: CVS Caremark (CVS)

Other ModernGraham posts about related companies

Target Corp Valuation – March 2017 $TGT
Foot Locker Inc Valuation – Initial Coverage $FL
Ulta Beauty Inc Valuation – Initial Coverage $ULTA
Kohl’s Corporation Valuation – March 2017 $KSS
Stamps.com Inc Valuation – Initial Coverage $STMP
Kirkland’s Inc Valuation – Initial Coverage $KIRK
Dollar Tree Inc Valuation – February 2017 $DLTR
Staples Inc Valuation – February 2017 $SPLS
Stein Mart Inc Valuation – Initial Coverage $SMRT
J C Penney Company Inc Valuation – Initial Coverage $JCP

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Back To Top