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CVS Health: A Gem Among Dividend Companies

May 22, 2023 4:52 AM ETCVS Health Corporation (CVS)100 Comments
Nathan Aisenstadt profile picture
Nathan Aisenstadt
4.78K Followers

Summary

  • We initiate our coverage of CVS Health with an "outperform" rating for the next 12 months.
  • CVS Health's revenue for the first three months of 2023 was $84.94 billion, up 1.7% from the previous quarter and 10.8% from the first quarter of 2022.
  • CVS Health's Q2 EPS is expected to be in the $2.01-$2.41 range, up 2.9% on average from the Q1 2023 consensus estimate.
  • On May 3, 2023, CVS Health released financial results for the first three months of 2023, which not only beat analysts' expectations but were able to demonstrate that demand for services and products from the company's three core segments is growing at a faster pace, despite a significant decline in COVID-19 and influenza activity.
  • CVS Health's gross margin was 15.35% in Q1 2023, hitting some of the lowest in recent quarters due to rising wages, product costs, and increased competition for government-sponsored health insurance programs like Medicare and Medicaid.

Клиентка, осуществляющая оплату с помощью бесконтактной кредитной карты

HRAUN/E+ via Getty Images

CVS Health (NYSE:CVS) is a leading healthcare company with an extensive network of pharmacies and medical clinics in the United States. CVS Health's subsidiaries serve tens of millions of Americans every year with access to prescription

This article was written by

Nathan Aisenstadt profile picture
4.78K Followers
I am an independent research analyst focused on finding undervalued assets with above-average growth rates and developments that can dramatically improve the company's financial position. When investing, I use medium-term and long-term trading strategies that take into account psychological and behavioral variables and are able to mitigate the risks associated with macroeconomic and geopolitical instability.The main sectors of analysis are industrials, consumer staples, technology, and healthcare.When analyzing assets in the healthcare sector, in addition to examining their financial position, I delve into the safety and efficacy data of the company's product candidates from preclinical and clinical studies, allowing me to evaluate their commercial prospects. While the education received at the Hebrew University of Jerusalem contributes to a comprehensive and detailed analysis of biotechnological and physicochemical processes used in the production of goods in the agricultural, oil and gas, and chemical industries. As a result, it allows me to find the most promising assets in a rapidly changing market and publish meaningful articles on Seeking Alpha.My e-mail for any questions and suggestions: aisenathan@gmail.com

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within 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.

This article may not take into account all the risks and catalysts for the stocks described in it. Any part of this analytical article is provided for informational purposes only, does not constitute an individual investment recommendation, investment idea, advice, offer to buy or sell securities, or other financial instruments. The completeness and accuracy of the information in the analytical article are not guaranteed. If any fundamental criteria or events change in the future, I do not assume any obligation to update this article.

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Comments (100)

Nathan Aisenstadt profile picture
Greetings.

Thank you for reading our article and following us. We appreciate it. As promised, we began to publish an analysis of the companies from the list. We will post articles about Merck and Alibaba in the next two days.

Thank you all again.
Boston Value Guy profile picture
when earnings drop, dividends are at risk.
Boston Value Guy profile picture
@Tippsology looks great! 😂
T
CVS will continue its downward trajectory because the government is going after its big moneymaker the Prescription Benefit Manager Business, that is Caremark for its thievery on the American prescription consumer.
H
Heavyy
01 Jul. 2023
@Tiger80 Their PBM model rely less and less on taking over a % of rebates.
T
@Heavyy And their profits will decrease as this occurs.
Chris Lau profile picture
Requested research: $MRK, $BMY, $AAP, $DG.
Don't waste a second on $BABA analysis. Learn China CCP (i spent 2 years) to predict the buy/sell ranges.

CVS debt, FCF: www.invrs.com/...
T
@Chris Lau I guess. Divvy isn't pausing. They just started to increase it again. This monster is coming out of her cave ;-) I also don't think you can directly compare CVS with UNH. They are vastly different businesses.
Chris Lau profile picture
@Tippsology the differences between UnitedHealthcare and Aetna Medicare plans are slim. UnitedHealthcare offers a more diverse lineup of Special Needs Medicare Advantage Plans and has a slightly larger network of health care providers.

UNH pulled CVS lower. I agree, I see CVS is fine LT.
T
@Chris Lau Agreed, if you are comparing UNH and Aetna, but Aetna is now part of the juggernaut that is CVS, so CVS needs to be looked at in its entirety and, thus, should not be compared to UNH. The market has yet to understand CVS.
A
Went on sale big time yesterday on comments by UNH that more seniors are getting hip and knee replacements stock drops over 5% and that is the silliest thing I ever heard of. Bidding down a stock on presumptions is silly but predictable. This equity is a buy at this price
T
@Always Bullish I am thankful for these gifts. $CVS and $ELV
D
Margin problems are the nail in the coffin. I would buy at $45
S
low margin business, heavy debt burden, unrelated diversifications to buy revenue, unwieldy and Goodwill exceeding stockholder equity - not a place to park for dividends. Uncle Sam is offering 5% on t-bills why do i buy cvs for 3.5%? buy SCHD for reliable dividends & better diversification
S
ticker - week of 6/2/23 - YTD returns

XLV - 1.98% - (4.07%) - overall

IBB - 1.69% - (1.76%) - biotech
IHI - 1.79% - 2.78% - devices
IHE - 1.62% - (5.85%) - pharma
IHF - 4.31% - (5.18%) - insurance
T
Although the pharmacies in CVS appear profitable now, that scenario could change too as more people choose online sources for their prescriptions. Although the prescription volume in CVS pharmacies may stay the same or increase; the profitability per prescription is likely to decrease which would affect their bottom line.
H
Heavyy
01 Jul. 2023
@Tiger80 That's exactly why they are moving to a Health hub platform rather than pure pharmacies
T
@Heavyy It will not work and if it does it will take a long time to develop where earnings will be affected positively.
William Prather profile picture
Wanted to ask if the new WOKE corporate policy at CVS is concerning anyone?
T
@William Prather Oh, are you talking about those same policies implemented at almost every publicly traded company in the USA? CVS is definitely not alone.
Boston Value Guy profile picture
@William Prather I love how they are still shoving vaccines down our throats on the app and 800 number. It's disgusting.
G
Why is this so weak. Business seems to be good and growth continues
A
Long CVS and adding on weakness as long as it’s in the bargain basement. What is the sweetener. On 5/5 Ceo Karen Lynch paid 975,500 for 14000 shares and we all know what that means. The stock is going higher
William Prather profile picture
@Always Bullish And she is underwater as of now. The woke ideology had not be initiated in May.
beefy136 profile picture
this JEM has been on a downward slide since december . I own 500 shares at 72.45 (was catching a falling knife ) . I am trying to decide do i unload at a loss before it drops to 60 or double down or just ride it out .
T
@beefy136 The only people who get hurt on a rollercoaster get off during the ride.
Oxbow11 profile picture
@beefy136 can't see this going below 59- My cost is $68 from two years ago- I finally got into add territory and will add until it crosses 75-
Leslie Martin Wubbel profile picture
@beefy136 I think you wait it out, I am buying in at this rock bottom price.
V
Too much debt... Its a creditor owner company until interest rate hikes go away for good. But if they FED keeps raising the rates....CVS Shareholders are going to pay the price like they have done since the FED started raising the rates...Stock Price kept falling with the rise in rates
beefy136 profile picture
@Very Fool yeh but their interest rates on their loans are a fixed rate i believe
T
@Very Fool At CVS Pharmacy, no complaints on pharmacy service, talented people behind the counter. Food items are overpriced though, more like a Seven-Eleven. Too much candy and sweets all over the store.
They have milk, but no half and half and I do not see yogourts in the locals where I reside. Minute Clinic was a big mistake and so was the Oak Tree purchase and they borrowed money to buy it and also stealing in rampant in all their stores. So high priced over the counter stuff is stolen not bought and no cameras in the stores. The pharmacy management companies will see profits fall when the government starts supervising what they do to make money. CVS will drop further. I would invite Amazon to open up Express food stores in CVS and rent out some of their square footage which does not make them profit and keep the goldmine which is the pharmacy. They do not have FED EX drop off and do not Xerox machines or scanners in store to help people who want to send things by computer or to pay online or computers at the store if someone has none at home especially seniors. CVS has to be more creative in a different type of business world and a new type of society. I like the pharmacists that work at CVS. Knowledgeable and helpful.
T
@Very Fool their loans are fine and they are generating plenty of cash.
MWinMD profile picture
Speaking of CEO Lynch, she bought $1M of the stock a three weeks ago at above current levels.
T'pee profile picture
I made good money with CVS, I would have made more had I paid just a little more attention to what the chart was telling me (at the time I wasn’t paying any attention). I can only recommend to those who are long CVS: pay attention to what the market is telling you, you may not agree but it doesn’t matter: Sure, it will (likely) eventually recover but for now the stock is in structural decline. What is the opportunity cost of waiting or the psychological cost of seeing this potentially decline further? There are plenty of businesses with excellent fundamentals and rising charts. And when CVS rises again? You can join the party too, when is that? For example when it is making higher highs on good volume on a weekly basis. The opportunity when it presents itself will not fade in a week or a month.
d
You still have to wonder why a brutish roughneck like CVS sullied a beautiful angel like Aetna.

Here is what I predict, in a few quarters/years some MBA suit will come up with brilliant idea to spin out Aetna to recognize value. And they will make money undoing their own mistakes.
T
@ding dong Aetna is a medical provider that steals plenty from the government through its dysfunctional care system.
d
"dysfunctional care system."

That is a feature of our healthcare system. A dysfunctional system allows a corrupt congress and its lobbying cronies to steal plenty at the expense of taxpayers.
T
CVS has dropped in price significantly from its high 52 weeks ago. The retail drug store chain has a terrible problem with theft of their over the counter merchandise which they have been unable to control . There solution has been to close down stores rather than device other methods to control theft while keeping their stores open. No cameras in the aisles and no one to watch the cameras videos from the front of the store. Thieves come in and empty out cosmetic aisle. CVS retail is very different from Walgreen's retail over the counter which is more extensive. CVS is loaded with candy and cookies Anyway this year CVS has been a poor investment. There investment in purchase of Oak Tree was a poor investment in that they borrowed to buy it and you do not know if Oak Tree customers will fill their prescriptions at CVS or buy OTC items at the CVS. I believe Minute Clinics in the CVS stores will prove unprofitable. CVS is a huge company that has made some errors in their business model. Really I am not sure what will happen as a result.
1to3 Investing profile picture
@Tiger80 Hi, I do disagree - but this is our prerogative on chat boards like SA.
CVS is closing stores because of theft, yes... but not really on their own doing. A store can only provide police with video evidence of theft for so long before they decide to quite bothering. Many cities have legalized theft "under $600" by outright stating they will not purse any convictions even when they have multiple layers of evidence. So CVS, Target, Walmart and other stores did what they could to mitigate losses. Once the numbers were in, it made more sense to close stores than to bother letting 50 people come in and steal $598 worth of product every week, sometimes every day.
Oak Tree remains to be seen if they will execute well on it. Minute Clinics are a great idea as fewer people can access great health care - pushing them towards first aid clinics, which CVS rightly decided to push towards. (If they pan out and gain the business from it is still undecided, but it could be why their Health Services segment has had some gains over the last few years, even with a slowdown on implementing the clinics and store revamps.)
T
@1to3 Investing CVS stores are not busy. The pharmacy does well but the rest of the store seems empty They are trying. but it is just not working
C
@Tiger80 I guess you’ve never been in a Walgreens.
J
Longterm serial underperformer on total return basis. Holding over the last 10 years you would have under performed S&P 500 by about 150%. Move on...
Nathan Aisenstadt profile picture
@J Patterson Greetings.

Thanks for sharing your opinion.
d
I rode $CVS from $54 to $100 during the dividend freeze/aggressive debt paydown. They unfroze the divvy and paid down huge chunks of debt while improving FCF. Now they went on another acquisition/debt binge, but I still have faith and am DCAing more into my position.

Very long $CVS
Nathan Aisenstadt profile picture
@dandroidz Hello there!

Thanks a lot for your comment.
1to3 Investing profile picture
@dandroidz Agree and so did I - even wrote a few articles about it.
Sold 70% over $100 and am really enjoying the price below $70 as I buy back in. I get the feeling the next time over $100 it will stick - and I believe their long-term business strategy is sound.
P
This was a gem when they acquired Aetna and I loaded this into 50’s.Sold out completely at 105 last year.On the sidelines for now .CEO is on a buying spree ,Acquiring companies having negative FCF.May be wise to nibble starting 3.5% yield and get more at 4% if it gets there as a value investment .
Nathan Aisenstadt profile picture
@Pradiyie Congratulations on a great deal.

As I have written several times, I think in the next two quarters, CVS Health will digest the acquisition of Signify Health and Oak Street Health, and only then will it start to improve with margins. In addition, the start of the flu season in Q4 will also help improve the company's financial position.

Thanks for the comment.
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