CVS Health Corp Valuation – June 2018 $CVS

Company Profile (excerpt from Reuters): CVS Health Corporation, incorporated on August 22, 1996, 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 Company delivers products and services by advising patients on their medications at its CVS Pharmacy locations; introducing programs for clients at CVS Caremark; delivering care to patients with complex conditions through CVS Specialty, and providing access to care at CVS MinuteClinic. As of December 31, 2016, the Company had more than 9,700 retail locations and more than 1,100 walk-in healthcare clinics.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of CVS – June 2018

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 $67,191,099,067 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.37 Pass
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 131.54% Pass
6. Moderate PEmg Ratio PEmg < 20 11.64 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.74 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 2.37 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.48 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 $5.67
MG Growth Estimate 9.80%
MG Value $159.44
Opinion Undervalued
MG Grade A
MG Value based on 3% Growth $82.24
MG Value based on 0% Growth $48.21
Market Implied Growth Rate 1.57%
Current Price $66.03
% of Intrinsic Value 41.41%

CVS Health Corp qualifies for both the Defensive Investor and the Enterprising Investor. In fact, the company meets all of the requirements of both investor types, a rare accomplishment indicative of the company’s strong financial position. . The Enterprising Investor is only concerned with the level of debt relative to the net 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 $3.43 in 2014 to an estimated $5.67 for 2018. This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.57% 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 below its Graham Number of $72.47. The company pays a dividend of $2 per share, for a yield of 3%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 11.64, which was below the industry average of 37.1, 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 $-24.2.

CVS Health Corp fares extremely well in the ModernGraham grading system, scoring an A.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$24.20
Graham Number $72.47
PEmg 11.64
Current Ratio 2.37
PB Ratio 1.74
Current Dividend $2.00
Dividend Yield 3.03%
Number of Consecutive Years of Dividend Growth 14

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Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2018
Total Current Assets $71,798,000,000
Total Current Liabilities $30,248,000,000
Long-Term Debt $61,552,000,000
Total Assets $135,139,000,000
Intangible Assets $51,503,000,000
Total Liabilities $96,462,000,000
Shares Outstanding (Diluted Average) 1,019,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $6.28
Dec2017 $6.44
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

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $5.67
Dec2017 $5.16
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

Recommended Reading:

Other ModernGraham posts about the company

6 Best Stocks for Value Investors This Week – 3/26/17
CVS Health Corp Valuation – March 2017 $CVS
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

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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.

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