CVS Stock: Could Outperform in 2022

CVS Health (CVS) is a healthcare company in the U.S. that owns CVS Pharmacy, a retail pharmacy chain; CVS Caremark, a pharmacy benefits manager; and Aetna, a health insurance provider, among many other brands. The healthcare company is headquartered in Rhode Island, and was founded in 1963.

I am bullish on CVS stock. The company generates strong free cash flows, grows its sales slowly but consistently, and has announced a strong Q3 FY2021 quarter. You can analyze Dividend Stocks and monitor upcoming earnings to discover new stock investing ideas.

CVS Health Business News

On December 9, 2021, CVS provided insights about its strategy based on consumer health experience and profitable growth.

The firm announced the closing of 900 stores over the next three years to reduce store density and optimize its retail portfolio, the launch of new all-payer health products and services, a focus on its digital technology to boost engagement with its online members, and that it was applying an omnichannel pharmacy strategy, while improving omnichannel health services.

CVS Health CFO and EVP Shawn Guertin stated, “We have a strategic financial approach that will focus on a combination of foundational business growth, new sources of incremental value, and strategic capital deployment to reach our long-term growth targets and drive shareholder returns,” and added, “We will also continue to prudently manage our balance sheet, while deploying capital against growth areas such as capability-focused M&A targets that will fit with our unique collection of assets and help accelerate our vision.”

Some other important business news was a 10% increase to the yearly dividend, from $2.00 to $2.20, and an authorization of “a $10 billion share repurchase program, which will be used to at least offset share count dilution in 2022.”

For full-year 2021, CVS Health mostly raised its guidance towards its upper range of forecasts for total revenues to at least $290.3 billion, adjusted operating income to at least $16.6 billion, adjusted EPS to at least $8, and cash flow from operations to at least $13.5 billion.

The company narrowed its expected GAAP EPS to a range of $5.50–$5.61 from a previous range of $5.46–$5.67.

Q3 2021

Some notable third-quarter highlights were a year-over-year increase of 10% for total revenues to $73.8 billion, and an increase of 29% to GAAP diluted EPS to $1.20. 

However, operating income fell to $3.06 billion, a year-over-year decline of approximately 6%.

Risks

CVS Health has seen its operating margin declining over the past five-year period, but not by much. Revenue per share shows consistent growth, the D/E ratio of 1.01 as per the latest quarter has been reduced over the past three years, and there is a liquidity concern as the current ratio and quick ratio are below 1.0.

CVS stock earnings have an impressive beat record during the previous eight consecutive quarters.

The very strong key metric for the healthcare company is free cash flow. In the first nine months of 2021, CVS Health generated a free cash flow of $12.33 billion. 

Sales growth is moderate between 4–5.30% per year, except for very high growth of 31.86% in 2019.

Valuation

CVS stock is attractive based on its P/E Ratio (18.6x) compared to the U.S. Healthcare industry average (22x) and based on its P/B Ratio (1.9x) compared to the U.S. Healthcare industry average (2.7x). However, it seems expensive based on its PEG Ratio (3.6x).

Wall Street’s Take

Turning to Wall Street CVS Health Corp has a Strong Buy consensus based on 20 Buys and three Holds. The average CVS Health price target of $114.59 represents 7.9% upside potential.

CVS Health Corp performed very well in 2021 with gains of approximately 40%. In 2022, it is still rather flat, having gains of about 2%. 

The strong free cash flows, consistent and stable profitability, and moderate growth make it a value play now.

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