Health services provider CVS Health Corporation (CVS) operates in three segments, Health Care Benefits; Pharmacy Services; and Retail/LTC.

On September 5, 2022, CVS announced its agreement to acquire Signify Health, Inc. (SGFY) for $30.50 per share in cash, amounting to a total transaction value of approximately $8 billion. If this acquisition carries through, it is expected to strengthen the company’s ability to provide new product offerings in a multi-payor approach.

On November 2, 2022, Karen S. Lynch, CVS' President and CEO, said, "We continue to execute on our strategy with a focus on expanding capabilities in healthcare delivery, and the announced acquisition of Signify Health will further strengthen our engagement with consumers."

In addition, CVS has paid dividends for 14 consecutive years. Its dividend payouts have increased at a 3.2% CAGR over the past three years. Its current dividend yield is 2.33%, and its four-year average yield is 2.79%.

Over the past month, CVS has lost marginally to close the last trading session at $94.62. It has lost 8.3% year-to-date. However, the stock has gained 4.4% over the past year. Moreover, Wall Street analysts expect the stock to hit $122.00 in the near term, indicating a potential upside of 28.9%.

Here is what could shape CVS' performance in the near term:

Solid Financials

CVS' total revenues increased 10% year-over-year to $81.16 billion for the third quarter ended on September 30, 2022. Its adjusted operating income came in at $4.23 billion, up 3.9% year-over-year. Moreover, its adjusted EPS came in at $2.09, up 6.1% year-over-year.

Attractive Valuation

CVS' forward EV/Sales of 0.59x is 85% lower than the industry average of 3.91x, while its forward EV/EBITDA of 9.15x is 31.1% lower than the industry average of 13.28x. Also, its forward Price/Sales of 0.40x compared with the industry average of 4.39x, and its forward Price/Book of 1.56x is 41% lower than the industry average of 2.64x. 

Strong Profitability

CVS' trailing-12-month EBITDA margin of 6.14% is 86.4% higher than the industry average of 3.29%. Its trailing-12-month net income margin of 2.66% is higher than the negative industrial average of 3.14%.

Furthermore, its trailing-12-month ROCE, ROTC, and ROTA of 11.00%, 5.96%, and 3.55% compare with the industry averages of negative 38.97%, 21.70%, and 29.73%, respectively.

POWR Ratings Reflect Promising Outlook

CVS has an overall A rating, which equates to a Strong Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. The stock has a B grade for Growth, consistent with its solid financials in the latest reported quarter. It has a B grade for Stability, in sync with its beta of 0.71.

In the four-stock Medical – Drug Stores industry, CVS is ranked first.

Click here for the additional POWR Ratings for CVS (Value, Momentum, Sentiment, Quality).

View all the top stocks in the Medical – Drug Stores industry here.

Bottom Line

CVS witnessed solid year-over-year growth in its third-quarter financials. Furthermore, analysts expect its revenue to grow 6.9% year-over-year to $312.36 billion in 2022. Given the stock's attractive valuations and robust profitability, CVS might be a solid addition to your portfolio ahead of the fourth quarter.

CVS shares were trading at $98.56 per share on Wednesday morning, up $3.94 (+4.16%). Year-to-date, CVS has declined -2.30%, versus a -18.56% rise in the benchmark S&P 500 index during the same period.

Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries.

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