CVS - Embedded Expectations Analysis - 2020 02 21
CVS Health Corporation (CVS:USA) currently trades below corporate averages relative to UAFRS-based (Uniform) Earnings, with an 18.5x Uniform P/E. At these levels, markets are pricing in bearish expectations for the firm, and although management's concerns about health plans and growth suggest the potential for near-term headwinds, given the size of the Aetna opportunity and management's excitement about their PBM segment, longer-term outperformance is warranted.Specifically, management may lack confidence in their ability to attract more health plans to their care management programs and make healthcare simpler, more local, and affordable. Moreover, they may be concerned about the progress of their Aetna integration plan and about their ability to reduce downstream medical claim costs. Furthermore, they may lack confidence in their ability to improve service for customers and employees, sustain membership growth, and continue to repay debt.
Although management's concerns about health plans and membership growth suggest the potential for near-term headwinds, given management's excitement about their PBM segment and the size of Aetna opportunities, market expectations remain far too bearish. As such, longer-term outperformance is likely warranted for CVS.
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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