CVS Market Research & Analysis Report
Updated Jun 5, 2015

Growth and Balance Sheet

CVS Health reported GAAP Q1 EPS of $1.07, inline with analyst estimate $1.08. Revenue for the quarter was $36.3 billion versus the consensus estimate of $35.93 billion. Adjusted EPS was $1.14. Net revenues in the Pharmacy Services segment increased by 18%, as compared to the same quarter last year, and net revenues in Retail Pharmacy segment increased by 2.8% as compared to the same quarter last year. Operating profit in the Pharmacy Services segment increased by 14% ,as compared to the same quarter last year, and profit in Retail Pharmacy segment decreased by 1.3% as compared to the same quarter last year. Gross margins narrowed from 18.18% to 16.97% compared to the same quarter last year, operating (EBITDA) margins now 7.22% from 7.69%. CVS stopped selling tobacco products last September after deciding more than a year ago to drop the business as it works to improve its image as a health care services provider. That hurt drugstore sales, as the company and analysts expected. Revenue from the front end, the area outside the pharmacy, of the company's established drugstores fell 6 percent.

The company raised the bottom end of its 2015 earnings forecast by three cents, resulting in a new expectation for $5.08 to $5.19 per share.

Valuation

CVS Health Corporation. P/E stands at 24.73 below the industry average of 30.53, and above the S&P 500 average of 17.60 The company is currently trading above the maximum P/E ratio of 15x, and over the last five years, the company’s shares have traded in the range of 13.90x to 24.30x trailing 12-month earnings. CVS's current Price/Sales of 0.80 is above the average of its industry of 0.58. CVS’s head to head comparison to its main competitors shows that the company has gross margin below it’s peers, and one that is below the industry average. The achieved operating margin of the company is above the average operating margin of the selected competitors, and it is at the industry average. The quarterly revenue is above the industry average. The stock is currently trading below its intrinsic value of $108.90 this suggests that the stock is currently undervalued at these levels. The beta of 1.20 implies higher volatility of the stock with respect to the S&P 500. CVS has shown positive earnings consistency over the last five years. Company’s earnings have increased by 9.26% over the same period. The current quarter earnings in comparison to the same quarter last year have decreased by 13.68%. CVS’s Total Debt/Equity of 34.55 is above the required maximum but it is below the industry average of 1061.01. CVS’s current price levels are below the maximum level, is trading  5.0% below the 52 week high of $105.40, and the technical analysis give a neutral view of the stock. The majority of analyst ratings are bullish. CVS has a dividend payout ratio of 29% and trailing annual dividend yield of 1.20%.

About CVS

CVS Health Corporation, formerly CVS Caremark Corporation, is a pharmacy healthcare provider in the United States. The Company has three business segments: Pharmacy Services, Retail Pharmacy and Corporate. Pharmacy Services provides pharmacy benefit management (PBM) services, including plan design and administration, formulary management, discounted drug purchase arrangements, Medicare Part D services, mail order, specialty pharmacy and infusion services, retail pharmacy network management services, prescription management systems, clinical services, disease management services and medical spend management. The Pharmacy Services business operates under the Caremark, CarePlus CVS/pharmacy, CVS/caremarkTM, CVS/specialtyTM, RxAmerica, Accordant, SilverScript, Novologix and Coram names. As of September 30, 2014, the Retail Pharmacy Segment includes 7,779 retail drugstores, online retail pharmacy websites, CVS.com and Onofre.com.br, 17 onsite pharmacy stores and retail healthcare clinics.

Competitor Comparison

CVS Health Corporation (NYSE: CVS) N.V.

Highlights

CVS Health Corporation, together with its subsidiaries, provides integrated pharmacy health care services in the United States. The company operated 7,850 retail locations at the end of the first quarter, a total that trails only Walgreens Boots Alliance Inc. The Company competes with Express Scripts, OptumRx, Catamaran and Prime Therapeutics. The stock closed yesterday’s trading session at $100.87. In the past year, the stock has hit a 52-week low of $74.60 and 52-week high of $101.30. CVS has a market cap of $113.68 billion and is part of the healthcare sector.

• Merger of CVS and Caremark Rx created leading integrated pharmacy healthcare provider in US    
• Extensive network of retail pharmacy stores and pharmacy services
• Strong financial performance and significant cash flow

• Allegations against CVS’s refill practices triggered monitoring and investigation

CVS Intrinsic Value

Stock Valuation Model & Intrinsic Value Definitions

Investors should keep an eye open for stocks that are trading within 10% of their 52-week highs, as it is likely to continue in its upward trend. CVS's 52 week high is $105.40 current price is 100.87, is 5.0% below the 52 week high.

The Price/Earnings (P/E) ratio, based on the greater of the current PE or the PE using average earnings over the last 3 fiscal years, must be "moderate", which in this model states is not greater than 15. Stocks with moderate P/Es are more defensive by nature. The company has a P/E ratio of 24.73 below the average industry P/E ratio of 30.53 and is above the S&P 500 P/E ratio of 17.60.

When there is strong insider ownership which we define as 8% or more, management is more likely to act in the best interest of the company, as their interests are right in line with that of the shareholders. Insiders own 0.18% of CVS stock. Management's representation is not large enough. This does not satisfy our minimum requirement; companies that pass this test are more attractive to our valuation model

The model is using several technical indicators (MACD, RSI, MFI, OBV, position Indicators) to forecast the trend of the stock for 6 and 12 months, and assign a value.

CVS is trading in the range of $97.87 - $104.93 in the past 30 days. The stock has been showing support at $98.70 and resistance in the $105.00 range. The stock is trading below the 50-Day Moving Average and above the 200-Day Moving Average. The RSI(14) is 34.70. Our indicators give a neutral view on CVS.

The financial health of the company the higher the better, we evaluate all the financial ratios of the company.

Investor’s sentiment for the stock.

The model assigns a value according to analyst’s recommendation for the stock. Analyst rating on Reuters.com is 10 Buy, 10 Outperform, 3 Hold, 0 Underperform and no Sell.

We are searching for EPS numbers that are better than the previous year's. One dip is allowed, but the following year's earnings should be higher than the previous year. CVS’s annual EPS for the last 5 years were 2.49, 2.59, 3.02, 3.75, 3.97 this type of earnings action is positive.

The company must have a low Debt/Equity ratio, which indicates a strong balance sheet. The Debt/Equity ratio should not be greater than 25% or should be less than the average Debt/Equity for its industry. CVS’s have total debt/equity ratio of 34.50% which is negative.

The EPS growth for this quarter relative to the same quarter a year earlier is above the minimum 15% that this model likes to see for a "good" growth company. Stocks with improving earnings are worthy of your extra attention. CVS’s EPS growth for this quarter relative to the same quarter a year earlier is -13.68%, below our target.

This stock valuation model looks for annual earnings growth above 12%, but prefers higher than 20%. CVS’s annual earnings growth rate over the past five years is 9.26%, below the target growth rate.

¹Tradespoon Score and Outlook: This score conveys Tradespoon’s long-term outlook of 1 to 5 years for a particular stock. Tradespoon uses proprietary methods to rate its trading picks on a scale from 1 to 10, with a 10 being the most favorable expected risk and return outlook. To determine a stock’s rating, Tradespoon uses an advanced algorithm that factors in fundamental and technical analysis to determine a stock's expected risk and return.