CVS - Embedded Expectations Analysis - 2021 08 27
CVS Health Corporation (CVS:USA) currently trades below corporate averages relative to UAFRS-based (Uniform) earnings, with a 14.5x Uniform P/E, implying bearish expectations for the firm. Although management's concerns about rising costs, volume and membership growth, and Medicare suggest the potential for near-term headwinds, market expectations appear overly bearish, suggesting long-term outperformance is likely.Specifically, management may lack confidence in their ability to continue introducing differentiated products, sustain reductions in medical costs for individuals using digital connections, and further strengthen their care abilities through HealthHub. In addition, they may be concerned about rising labor costs and diminishing benefits from COVID-19 vaccines. Moreover, management may lack confidence in their ability to sustain dual special needs plans membership growth, maintain improved pharmacy volume growth, and pay down maturing debt. Furthermore, they may have concerns about a slowdown in elective procedures and they may lack confidence in their ability to capitalize on core business growth opportunities and meet revenue guidance. Finally, management may be overstating opportunities in the Medicare space, the potential of their medical benefit management program, and the strength of their combined enterprise.
Although management's concerns about rising costs, volume and membership growth, and Medicare suggest the potential for near-term headwinds, market expectations appear too bearish given the potential of the firm's capabilities post-Aetna acquisition. As such, long-term outperformance is likely.
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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