Integrated healthcare retailer and insurer CVS Health Co. (NYSE: CVS) stock presents a value not seen in years. The medical sector giant saw its shares punished on its Q1 2024 top and bottom line miss, as well as lowered full-year 2024 guidance. However, value investors may want to take a closer look under the hood at this potential opportunity.  

An Opportunity for Value Investors?

It's worth noting that CVS still earned a profit of $1.31 per share in its first quarter of 2024, and revenues still managed to climb 3.7% year-over-year (YOY). CVS stock now trades at just 8.19X forward earnings compared to a historical price-earnings (PE) ratio of 18.19. CVS stock also has a healthy 4.73% annual dividend yield. CVS commands a 25.7% market share of the U.S. pharmacy segment as of the end of 2023. Shares are attempting to climb out of the proverbial gutter as they try to clear the $56.89 gap-fill resistance level.

CVS Health competes with other pharmacies, including Walgreens Boots Alliance Inc. (NASDAQ: WBA), Walmart Inc. (NYSE: WMT) and insurers like UnitedHealth Group Inc. (NYSE: UNH).

Don't Forget Aetna

Most investors know CVS Health for its drug stores and pharmacies. However, you should also remember that the company operates the country's third-largest health insurance company, Aetna.

Aetna insures 39 million people and generated nearly $40 billion in the first quarter of 2024. The company provides HMO, PPO, Medicare Advantage and Medicaid coverage for individuals and families. Aetna also offers hybrid versions of coverage, including HMO-POS, which provides additional out-of-network choices for certain therapies.

Medicare Advantage Plans: Cure or Curse to the Bottom Line?

In regard to Medicare Advantage (MA) plans, Aetna grew its membership the most, adding 544,000 Medicare enrollees in 2024, surpassing UnitedHealth Group at 478,000 and Humana Inc. (NYSE: HUM) at 412,000 new MA members.

This could end up being a detriment, as MA has been a weak link for insurers, casting uncertainty with rising inpatient utilization costs. However, CVS only has 3.85 million MA members, compared to 9.44 million and 5.97 million held by UnitedHealth and Humana, respectively.

Being aware of the rising costs for MA members, CVS management stated that its focus on profitability could cause it to shed 10% of its MA members in 2025. As they prioritize margins, they may reduce supplemental benefits like OTC medicine allowances, transportation assistance and fitness memberships and will exit counties that they consider unprofitable.

Daily Rounding Bottom

CVS shares are attempting a daily rounding bottom pattern. CVS shares gapped down 18% on its Q1 2024 earnings report to bottom out around $53.70 as it steadily rounded higher through the $56.89 gap-fill level. The daily relative strength index (RSI) fell to a severely oversold level near the 12-band before gradually climbing back up through the 30-band level. In case of further pullbacks, support levels are at $56.89, $53.70, $49.90 and $47.58.

Disappointing Q1 2024

CVS reported Q1 2024 EPS of $1.31, missing estimates by 38 cents. GAAP diluted EPS was 88 cents. While revenues rose 3.7% YoY to $88.44 billion, they still missed the $89.33 billion consensus analyst estimates. The company generated $4.9 billion in cash flow from operations. In the quarter, it bought back 40 million shares, completing its $3 billion stock buyback program and returned $840 million to shareholders in dividends.

Lowered Full Year 2024 Guidance

CVS revised full-year 2024 EPS guidance lower to at least $7.00 versus $8.27 consensus estimates. This was cut from previous guidance of at least $8.30. CVS lowered cash flow from operations guidance to $10.5 billion, down from at least $12 billion. Medical costs were $900 million above expectations, primarily in MA. $500 million of expenses were seasonal factors and specific items related to the quarter. The remaining $400 million was driven by utilization trends that CVS believes will persist for the rest of 2024.

CVS Health CEO Karen Lynch commented, "The current environment does not diminish our opportunities, enthusiasm, or the long-term earnings power of our company. We are confident we have a pathway to address our near-term Medicare Advantage challenges. We remain committed to our strategy and believe that we have the right assets in place to deliver value to our customers, members, patients, and shareholders."

CVS Health analyst ratings and price targets can be found at MarketBeat.