CVS Health: Trapped Between Growth Expectations And Uncertainty

Jul. 01, 2019 5:45 PM ETCVS Health Corporation (CVS)30 Comments
Daniel Schönberger profile picture
Daniel Schönberger
10.23K Followers

Summary

  • Judge Leon will decide about the CVS-Aetna merger in July, and there is a lot of uncertainty what will happen if the merger is blocked retroactive.
  • At the beginning of June, CVS also held its annual investor day and presented the path back to double-digit growth and debt reduction.
  • CVS remains deeply undervalued and the current stock price doesn't seem to match the growth expectations of management as well as analysts.
  • This idea was discussed in more depth with members of my private investing community, ​Moats & Long-Term Investing. Start your free trial today »

About four months ago, I published my last article on CVS Health Corp. (NYSE:CVS). The stock was trading at a similar level as right now. In the months before, the stock dropped pretty quickly from about $80 to $52 and is since then trading more or less at that level and even positive quarterly results didn't lead to a turnaround in the stock price.

For several months, CVS traded in a very small range between $52 and $57 and impulses to drive the stock price higher again (or maybe even lower) have been missing. Before CVS will report its quarterly results next week (on July 8th) and might get impulses again, that will lead the stock higher or lower, we will take a closer look at the company and the stock.

Larry J. Merlo vs. Richard J. Leon

As I have already written in the last article, I think CVS is severely undervalued. The main reasons for the depressed valuation, in my opinion, are the high levels of uncertainty and the high debt levels CVS has to deal with (among some other aspects).

A big concern right now for CVS is US District Judge Richard Leon in Washington, that must finally authorize the decision under the Tunney Act and the judge signals broad anti-trust concerns. The Justice Department demanded that Aetna already divested its Part D business before approving the merger last year, but there are still concerns that CVS might become too powerful and end up in a position where it can set prices because of missing competition.

CVS Health - along with Express Scripts (ESRX) and Optum - is controlling 70% of the Medicare prescription drug market nationally, and we, therefore, have three very powerful players in the healthcare sector: Optum is owned by UnitedHealth (

If you enjoyed the article and like to learn more about wide moats, please check out my marketplace service: Moats & Long-Term Investing.

Subscribers get access to extensive background information on wide-moats, at least weekly exclusive research, a watchlist of wide moat companies and a chatroom where members can ask questions and exchange opinions about long-term investing and companies with a competitive advantage.

For investing in companies that can beat the market over the long term and create a portfolio with companies you can (almost) hold forever, please check out my marketplace service. You can also take advantage of a free trial offer.

This article was written by

Daniel Schönberger profile picture
10.23K Followers
Part-time investor and contributor for Seeking Alpha since 2016. My analysis is focused on high-quality companies, that can outperform the market over the long-run due to a competitive advantage (economic moat) and high levels of defensibility. Focused on European and North American companies, but without constraints regarding market capitalization (from large cap to small cap companies). My academic background is in sociology and I hold a Master’s Degree in Sociology (with main emphasis on organizational and economic sociology) and a Bachelor’s Degree in Sociology and History.I also write about investing, economy and similar topics on Medium: https://medium.com/@danielschonberger

Disclosure: I am/we are long CVS. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Recommended For You

Comments (30)

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.