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September 01, 2020 1:41pm
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1 Health Care Stock That Continues to Outperform Its Competitors

Leading healthcare company CVS Health (CVS) reported strong second-quarter results and raised its fiscal 2022 full-year EPS and cash from operations guidance. Moreover, the company expects considerable growth across all its business segments, driven by its differentiated business model. Given the competitive advantages of its products and services, CVS continues to outperform its peers. Let’s discuss this in detail…

With a $133.91 billion market cap, CVS Health Corporation (CVS) provides health services in the United States. The company operates through four segments: Pharmacy Services; Retail/LTC; Health Care Benefits; and Corporate/Other.

It offers prescription drugs, traditional and consumer-directed health insurance products, pharmacy benefit management solutions, and consumer health and beauty products.

CVS reported solid second-quarter performance driven by its differentiated business model, with significant revenue growth across all its business segments. The company raised 2022 full-year EPS and cash flow from operations guidance.

CVS now expects EPS of $7.23 to $7.43, compared with a prior outlook of $6.93 and $7.13. It forecasts the adjusted EPS between $8.40 and $8.60, compared to the previous guidance of $8.20 to $8.40. In addition, the company expects cash flow from operations from $12.50 billion to $13.50 billion, up from the previously guided range of $12 billion and $13 billion.

Karen S. Lynch, CVS’ President and CEO said, “The continued success of our foundational businesses accelerated our strategy to expand access to health services and help consumers navigate to the best site of care.”

On August 3, Aetna, a CVS Health company, announced its entry into the individual insurance exchange marketplace in California with Aetna CVS Health's co-branded insurance product. Its health insurance features quality and affordable care using virtual technology and in-person care. The new insurance product is expected to boost the company’s growth and profitability.

On May 30, CVS launched the CVS Health Virtual Primary Care, a virtual care solution accessible through a single digital platform. The solution integrates the company’s services, clinical expertise, and data for a more collective and consumer-centric healthcare experience.

In addition, it will use an interoperable electronic health record to allow members to transition between virtual and in-person care and share their clinical data with other providers. The new solution might improve CVS’ primary care and accelerate its business growth.

CVS’ shares have gained 8.3% over the past month and 25.5% over the past year to close the last trading session at $102.00.

Here is what could influence CVS’ performance in the upcoming months:

Robust Financials

CVS' revenues increased 11.7% year-over-year to $42.81 billion in the fiscal 2022 second quarter ended June 30, 2022. The company's operating income amounted to $4.57 billion, up 5.6% year-over-year. Its income before income tax provision grew 7.9% year-over-year to $4.03 billion.

Furthermore, the company net income and income per share attributable to CVS came in at $2.96 billion and $2.23, registering increases of 6.1% and 6.2%, respectively, from the prior-year period. Its cash inflows from operating activities rose 3.1% from the year-ago value to $9.01 billion.

Favorable Analyst Estimates

Analysts expect CVS' revenue for the fiscal 2022 third quarter (ending September 2022) to come in at $76.80 billion, representing a rise of 4.1% from the same period in 2021. The $2.01 consensus EPS estimate for the ongoing quarter indicates a 2.2% year-over-year increase. The company has surpassed the consensus revenue and EPS estimates in each of the trailing four quarters.

In addition, CVS’ revenue and EPS for its fiscal year 2022 (ending December 2022) are expected to rise 6.9% and 1.7% year-over-year, respectively. Also, analysts expect the company’s revenue and EPS for the next year to grow 4.2% and 6% year-over-year, respectively.

Discounted Valuation

In terms of forward non-GAAP P/E, CVS’ 11.98x is 40.9% lower than the 20.27x industry average. The stock’s 0.62x forward EV/Sales is 85.1% lower than the 4.15x industry average. Also, its forward EV/EBITDA multiple of 9.67 compares with the industry average of 13.36.

In addition, CVS’ forward Price/Sales multiple of 0.43 compares with the industry average of 5.01. Its 11.38x forward Price/Cash Flow is 33.8% lower than the 17.19x industry average.

High Profitability

CVS' trailing-12-month EBIT margin of 4.71% is 280.7% higher than the 1.24% industry average. Its trailing-12-month EBITDA margin of 6.14% is 36.7% higher than the 4.49% industry average. Likewise, the stock's trailing-12-month asset turnover ratio of 1.33% is 284.5% higher than the industry average of 0.35%.

POWR Ratings Show Promise

CVS' overall A rating equates to a Strong Buy in our POWR Ratings system. The POWR Ratings are calculated by accounting for 118 distinct factors, with each factor weighted to an optimal degree. 

CVS has a grade A for Growth, consistent with its revenue and earnings growth estimates. It also has a grade of A for Stability. The stock’s beta of 0.96 justifies the Stability grade.

In addition, CVS has a grade of B for Value, in sync with its lower-than-industry valuation multiples.

CVS is ranked #1 out of 5 stocks in the Medical-Drug Stores industry.

Beyond what I have stated above, we have also given CVS grades for Sentiment, Quality, and Momentum. Get access to all the CVS ratings here.

Bottom Line

CVS reported strong financial results for the fiscal 2022 first quarter and affirmed continued growth for the full-year 2022. Furthermore, the company is well-positioned to benefit from its differentiated business model, with solid revenue growth across its Health Care Benefits, Pharmacy Services, and Retail/LTC segments.

The stock has outperformed its industry peers and the broader market over the past month. Given the company’s strong financials, solid revenue and earnings growth estimates, lower-than-industry valuation, reasonable stability, and high profitability, the stock could continue outperforming its competitors. Therefore, investing in this health care stock could be wise now.

How Does CVS Health Corporation (CVS) Stack Up Against its Peers?

CVS has an overall POWR Rating of A, which equates to a Strong Buy rating. This rating is superior to its peers within the Medical-Drug Stores industry, such as Walgreens Boots Alliance Inc. (WBA), Clicks Group Limited (CLCGY), and SunLink Health Systems, Inc. (SSY), which all are rated C (Neutral).

CVS shares rose $0.70 (+0.69%) in premarket trading Tuesday. Year-to-date, CVS has gained 0.50%, versus a -12.40% rise in the benchmark S&P 500 index during the same period.

About the Author: Mangeet Kaur Bouns

Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.


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