CVS - Embedded Expectations Analysis - 2019 08 14
CVS Health Corporation (CVS:USA) currently trades near historical averages relative to UAFRS-based (Uniform) Earnings, with a 17.0x Uniform P/E. At these levels, markets are pricing in bearish expectations for the firm, and while management has concerns about expansion, operating income, and capital allocation, the firm's leadership position in its space suggests longer-term upside remains warranted.Specifically, management may be concerned about the value their kidney care program provides to patients and about the adoption rate of their Novologix platform. Furthermore, they may be concerned about their ability to improve their consumer-centric technology infrastructure and to improve their chronic condition management. In addition, they may lack confidence in their ability to sustain recent PBM operating income growth, and they may be concerned about the sustainability of Patient Care Program adoption rates. Furthermore, they may be concerned about the sustainability of their capital return strategy, and they may lack confidence in their ability to delever after the Aetna transaction. Finally, they may lack confidence in their ability to open 100 new stores in 2019, and they may be concerned about growth in the ScriptPath program.
That said, even with near-term headwinds suggested by management's pessimism, long-term outperformance remains warranted at current valuations.
CVS Health is a health company. The company's segments are: Pharmacy Services, which provides a range of pharmacy benefit management solutions, including plan design offerings and administration, formulary management, and retail pharmacy network management services; Retail/Long-Term Care (LTC), which sells prescription drugs and general merchandise, including over-the-counter drugs, provides health care services through its MinuteClinic? walk-in medical clinics and conducts LTC pharmacy operations; and Health Care Benefits, which provides a range of voluntary and consumer-directed health insurance products and related services, including medical, pharmacy, dental and behavioral health plans.
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