CVS - Embedded Expectations Analysis - 2020 05 21
CVS Health Corporation (CVS:USA) currently trades below corporate averages relative to UAFRS-based (Uniform) earnings, with a 13.4x Uniform P/E, implying bearish expectations for the firm. Although management's concerns about coronavirus, Medicaid, and growth suggest the potential for near-term headwinds, market expectations are overly bearish, and longer-term equity outperformance is likely warrantedSpecifically, management may lack confidence in their ability to sustain growth in their total scripts and retail prescription home deliveries and maintain Aetna app usage and household engagement. Furthermore, they may be concerned about a “new normal†in healthcare, the impact of coronavirus, and the specialty business within Ingenio. Moreover, they may lack confidence in their ability to make investments to support customer and member needs, increase their real-time coronavirus test administration, and continue to expand their core services nationwide. In addition, they may be concerned about unusually high-cost claimants in the Medicaid business, the decrease in overall commercial risk membership, and their ability to motivate small groups to move from insurers to ASOs
Although management's concerns about coronavirus, Medicaid, and growth suggest the potential for near-term headwinds, given the firm's potential operational inflection from Aetna opportunities, market expectations are overly bearish, and longer-term equity 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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