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Wall Street Analysts Are Bullish On CVS, But Mr. Market Is Skeptical

Apr. 11, 2021 5:53 PM ETCVS Health Corporation (CVS)62 Comments
Geoff Considine profile picture
Geoff Considine


  • CVS stock price has dropped 27% over five years.
  • The Wall Street consensus has been consistently bullish over this period and remains bullish.
  • The market-implied outlook is modestly bearish.
  • The current valuation suggests the market anticipates modest growth.
  • My final rating is neutral.

Portrait of female nurse holding digital tablet at hospital using protective mask
Photo by FG Trade/E+ via Getty Images

Many people think about CVS as a retail pharmacy chain, but CVS Health Corporation (NYSE:CVS) is far more than that. Through the acquisition of Aetna in late 2018, CVS is now

This article was written by

Geoff Considine profile picture
Geoff has worked in quantitative finance for more than twenty years. Before entering finance, Geoff was a research scientist for NASA. Geoff holds a PhD in Atmospheric Science from the University of Colorado - Boulder and a BS in Physics from Georgia Tech. Neither Geoff Considine nor Quantext (Geoff's company) are investment advisors. Nothing in any commentary here on Seeking Alpha or elsewhere shall be regarded as advice.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in CVS over the next 72 hours. 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.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (62)

banmate6 profile picture
You have to appraise and buy when it's opportune. I bought CVS as described in my blog here: seekingalpha.com/...

All 3 basis buys were at low Fast Graph blended PEs, 1 at ~10 and 2 at ~8. It is now 11. Still cheap compared to the 15 year average PE of 13.59. And earnings are growing.

CVS was a great example of an irrationally underpriced stock. I'm glad I bought. I will hold and probably add more on a pullback.

Here's my CVS performance.

CVS shares total price $/share
8-Aug-2019 100 $5,900.45 $58.9150 basis
4-Nov-2019 0.757 $50.00 $66.0770 div
8-Dec-2019 50.00 $3,609.25 $72.1850 basis
3-Feb-2019 1.087 $75.3800 $69.3646 div
13-Feb-2020 50 $3,117.00 $62.3400 basis
4-May-2020 1.628 $100.92 $62.0064 div
4-Aug-2020 1.5713 $101.74 $64.7484 div
3-Nov-2020 1.7138 $102.52 $59.8203 div
2-Feb-2021 1.4333 $103.38 $72.1264 div

total shares: 208.1904
basis: $12,626.70
avg $/share: $63.21
avg $/share (basis shares offset by div shares): $60.65
current price: $83.04
current value: $17,288.13
total return: 36.92%
CAGR: 22.90%
shares earned as reinvested dividends: 8.1904
base value of shares earned as reinvested dividends: $533.94
current value of shares earned as reinvested dividends: $680.13
reinvested dividend total gain: 27.38%

The S&P500 actually slightly beat CVS here. But CVS is at fair value, whereas the S&P500 is way overvalued. I expect CVS to well beat the index over a longer time horizon.
This is an amazing week so far. Portfolio up Monday 1.21%, Tuesday up 0.39%, and today Wednesday up 0.96%. This old retired guy is happy with his results. My results are shared on my Profile. Good Luck SA investors.
I find it very questionable to value a business based on options. Makes for a nice complicated model, which the author seems to thoroughly enjoy. But has nothing to do with fundamentals and assumes that markets are 100% efficient. CVS hit 83 today, so could very well be that we had the 24% occurrence. Or more likely shows that the 76% (which by the way seems incredibly precise for something so unpredictable like stock movements) is nonsense.
Does this guy always simply value stocks based on options? Does he ever do a dive into the actual business? I don’t buy a company with my eye to the next 12 months but rather the next 12 years and for the past two years I have been steadily accumulating shares of cvs because that have an amazing business plan that portends to long term success. The fact that they haven’t raised their dividend in order to pay off debt for a something that many other companies should be taking notes on. CVS may not be doing exactly what each shareholder would like but they are definitely doing what’s best for for each shareholder. Continue buying cvs and you won’t be disappointed
I guess mr. Market ain’t skeptical no more.
so grateful our family trust built a position over the last two years. perhaps the market embracing the aetna synergies.
@raising rusty market realizes with covid shots, insurance claims, retail that cvs has more to offer than prescription drugs. Also,AMZN was a non event
Appears to have blown through estimated ER. Next stop 100.00. Patience is a virtue
In short, after waiting on my dividend question, no body knows. That said, I predict a 20% this calendar year and 15% the following year? Thereafter, a 10% annual increase! Anybody got a better estimate
@wcobb Unfortunately CVS is not interested in raising the dividend. The last time it was raised was on 12/22/2016 from $0.425 to $0.50.

Based on their performance last year and so far this year it's unlikely to happen. The dividend of 2.66% in todays economy is pretty good but no growth. However, the dividend payout expense is very low and safe. So for the time being treat it like a CD for dividends only. This is a long term hold if you want to see appreciation and dividend increases.
Steve Rasher profile picture
@wcobb Management has made clear that the dividend will not be raised until debt is paid down to a predetermined level, around net debt 3X EBTIDA, which would mean reducing net debt further to around $56B, which they intend to do by the end of 2022 (See: seekingalpha.com/... Also, see slide 5 of seekingalpha.com/... They continue to make good progress on getting there, and, indeed, as I recall, they are actually ahead of schedule. By doing so $CVS will be a stronger company and then will be in a position to make meaningful increases in the dividend because of its overall strong cash flow. Thus, I am looking for an increase in the dividend by sometime at the end of 2022. Patience will be rewarded. Steve
@Steve Rasher I hope so. My money is on the line.
When do we expect a dividend increase and how much. We have been sitting on a divy of $2.00 per year since January 2017.
Very good Day. Nice gains in the Market. CVS had a good Day too. April has been good. Not spectacular but good. In the money and that's what it's all about.
Thanks. This is an interesting method to analyze stocks. I read many Seeking Alpha articles and wonder if it leads to confirmational bias. Your method is objective and presents a different and important new view.
wiredlitigator profile picture
@Geoff Considine , nice job dummying this down into English. Very good read. Long cvs and <10 pe is hard to come by these days.
donio profile picture
@wiredlitigator <10 p/e, business growing, debt will become lower and dividend higher. so why not?>!
892 profile picture
I did my own DCF analysis of free Cash flow and have a $112 intrinsic value estimate. However, in order to get there, I believe you will have to wait about 2-3 years while the company lower's its debt levels. You will have to be content with a dividend that probably wont grow while this is going on. I am thinking that once the debt is lowered, that frees up cash to buy back shares (currently undervalued) and raise the dividends. I like where the company is going but realize they likely overpaid for the Aetna acquision which will add health insurance to its product line. The companies free cash flow is really starting to grow now, and margins have seen some improvement post 2018.
Nice dividend it you bought the stock at the right price. Whatever the reason they seem stuck where they are. It should be good in the long term but their performance makes you wonder if things will improve.
Wonder why they never attached the Aetna moniker to this. Quite sure many millenials unaware of the Aetna synergies. Prescription drugs and insurance. Two necessary evils lol
Extreme Income Plus profile picture
@Geoff Considine I'm long CVS and have been for awhile. My approach is to sell covered calls or cash covered puts, depending on whether my shares are called away or not.

My comment is this: so many well-meaning authors seem to miss a huge and obvious opportunity right in front of them. They counsel selling 9 month options, in this case for $2.64, when you could move closer in, to the $76 strike May 14 date, and get $1.06.

So one month = $1.06
9+ months = $2.64

Yes, I get the difference in strikes. But if you're modestly bearish, or even neutral, why wouldn't you want a closer in strike, since you're not bullish, and then sell 9 months around $1 each?

That's $9.00 as I compute it

I wanted to give a heads up on that to CVS holders. Strongly consider a short-term option instead of automatically looking at the long term ones! You're missing a ton of opportunity, at not much added work.

Extreme Income Plus
(long CVS and happy with the above techniques)
Willow Street Investments profile picture
if you listen to "mr. market" you will lose money
CVS and its nearest competitor Walgreens (WBA) are safely sleep at night holdings who are shaping American HealthCare, They pay a solid and safe dividend, are shareholder friendly and run by what appears to be honest competent and experienced management and both of these gems could have been bought a few short months ago at very attractive prices thanks to Mr. Market bidding the price down as if they were going out of business. WBA as most investors should be aware is a dividend aristocrat having raised the dividend for over 25 years. These two companies, with CVS the most prominent, are shaping the future of healthcare in America by convincing employers and their insurers to send patients to the local pharmacy to visit the minute clinic or Village MD to see a PA or NP instead of a physician to treat the multitude of non life-threatening illnesses that people go the doctor or emergency room for on a daily basis. This leadership in healthcare is dramatically efficient and cost-effective. I will not comment on the current stock price as Price is what you pay and Value is what you get, however I have been long these conservative gems for decades collecting the wonderful dividends while I wait for Mr. Market to bring them up to their true intrinsic value which as you all know will eventually happen, it’s one of the mystery’s of the stock market and investing.
Truebluealpha profile picture
Bought this in tandem with WBA 32 months ago and buying dips in small lots ever since, so no complaints with a 33.5% gain (WBA, on the other hand, is finally above water again @ +6%, what a slog that has been). In any case ,I literally laughed out loud here in the early morning at this line:

"It is notable, however, that the very bullish tilt in analyst opinions has been present over the past five years, a period over which the stock price has fallen 27%."

In other words, "analysts" don't know squat, yes? Or is it just that they're wayyyy ahead of the market and will ultimately be vindicated? (Hopefully sometime before I die...)

My question: If the aggregate "analysts" are worthless, are there particular analysts who actually know stuff, with a good track record, and are worth listening to? And if so, how does one find said analysts?
@Truebluealpha history would suggest that analysts change their views to match stock prices rather than stock prices change based on what analysts say. occasionally a "hot" analyst enjoys a brief period of moving the market (see Cathie Wood) however that always, repeat always, ends badly for the analyst. Cathie Wood will eventually go the way of Richard Simmons
Truebluealpha profile picture
@joemrogers Thanks, but something doesn't add up here: if analysts change their views to match stock prices, why have they remained bullish for five years on CVS while the price tanked? Is this an exception?
892 profile picture
@Truebluealpha re: Analysts estimates: The analysts have done a pretty good job predicting CVS's earnings a year out (+/-10%) and 2 years out (+/-20%) historically based on some stats I saw in Fastgraphs. I believe they do well with a stock like this, because there is not a lot of cyclicity in the historical earnings profile (there is some but not much). Where analysts really fail to predict the future, is when you are looking at a company with historically cyclical (lumpy) earnings profiles. Thats my theory anyway.
Steve Rasher profile picture
The market is impatient and in need of instant gratification. Management and the BoD have clearly articulated their business plan, which is management is executing on quite well. All one needs is a little patience and, in the meantime, collect the nice dividend. I, too, recognized the investment thesis a bit early, and, as a result, am up about 30%. More to come. Steve
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