CVS - Embedded Expectations Analysis - 2020 08 17
CVS Health Corporation (CVS:USA) currently trades below corporate averages relative to UAFRS-based (Uniform) earnings, with a 13.3x Uniform P/E, implying bearish expectations for the firm. Although management's concerns about coronavirus, virtual care offerings, and gross margins 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 improve front store margins, reduce unnecessary ER visits for their customers, and administer up to 18 million seasonal flu vaccines this fall. They may also have concerns about the sustainability of their care delivery model, and the potential of Zinc Health Services in assisting clients and the Return Ready COVID-19 testing solution. Moreover, they may lack confidence in their ability to sustain client enrollment in Return Ready, continue working with interested clients and providers on integrated product offerings, and expand their virtual care offerings. Finally, they may be exaggerating their digital health capabilities and their confidence in higher savings for their customers, and they may lack confidence in their ability to sustain membership in Medicaid and pharmacy benefits management
Although management's concerns about near-term headwinds suggest the potential for near-term underperformance, given the firm's potential operational inflection from the Aetna acquisition, 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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