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CVS Health (CVS) Pre-Earnings Analysis: Buy or Hold?

The largest U.S. drugstore chain, CVS Health (CVS), will release its fourth-quarter results on February 7. The company is expected to report year-over-year growth in revenue and earnings. With the expected rise in medical costs during the fourth quarter, should investors consider buying the stock now? Read on to learn my view…

CVS Health Corporation (CVS) is scheduled to report its fourth-quarter and full-year results on February 7. Wall Street expects the healthcare major’s revenue and EPS to increase year-over-year. In this piece, I have discussed why it could be wise to wait for a better entry point in the stock despite the expected rise in revenue and earnings.

For the fourth quarter, CVS’ EPS is expected to increase 0.1% year-over-year to $1.99. Similarly, its revenue for the same quarter is expected to increase 7.9% year-over-year to $90.46 billion. The company has a solid earnings history, having beaten the consensus estimate in each of the trailing four quarters.

After reporting its third quarter results, CVS Health President and CEO Karen S. Lynch said, “Despite a challenging business environment, we continue adapting to the changing needs of our consumers by connecting our care delivery capabilities in communities across the country, broadening access to care and lowering costs.”

The company said that its fourth-quarter medical costs would be higher than previously expected. Also, it forecasted that its medical-loss ratio or medical-benefit ratio would be 87.2% this year.

CVS revised its full-year 2023 GAAP EPS guidance range to between $6.37 and $6.61 from between $6.53 and $6.75. It reaffirmed its fiscal 2023 adjusted EPS guidance range of between $8.50 and $8.70. The company also confirmed its cash flow from operations guidance for fiscal 2023 of $12.50 billion and $13.50 billion.

It expects its total company revenue for the full-year 2023 to come between $351.50 billion and $357.30 billion. Also, its adjusted operating income is likely to come between $17.20 billion and $17.60 billion.

In August, the company launched Cordavis, a wholly-owned subsidiary that will work with pharmaceutical manufacturers to commercialize and/or co-produce biosimilar products for the U.S. market.

At its 2023 Investor Day, CVS introduced CostVantage and CVS Caremark TrueCost to drive aligned incentives and deliver a more transparent and sustainable reimbursement model. It also launched the CVS Healthspire brand for the Health Services segment that simplifies access to multi-payor capabilities, better aligns client service, and helps drive better outcomes and greater lifetime value.

CVS Health President and CEO Karen S. Lynch said, “We are successfully executing on our strategy to advance the future of health care while unlocking new value for consumers. The combination of our businesses and the key growth areas we have invested in drive our ability to lower the total cost of care, improve health outcomes, and deliver on our commitments to our customers, consumers, and shareholders.”

For fiscal 2024, the company expects total revenues of approximately $366 billion. Its adjusted operating income is likely to be at least $17.20 billion. Also, its adjusted EPS is expected to be at least $7.26. In addition, its cash flow from operations is expected to be approximately $12.50 billion.

CVS’ stock has gained 4% over the past three months and declined 15.9% over the past year to close the last trading session at $72.44.

Here’s what you might want to consider ahead of its upcoming earnings release:

Mixed Financials

CVS’ total revenues for the fiscal third quarter ended September 30, 2023, rising 10.6% year-over-year to $89.64 billion. Its adjusted operating income increased 2.5% over the prior-year quarter to $4.46 billion. Also, its adjusted EPS came in at $2.21, representing an increase of 1.8% year-over-year.

On the other hand, the company’s adjusted net income decreased 0.7% year-over-year to $2.85 billion. In addition, its Health Care Benefits segment’s adjusted operating income declined 6.4% year-over-year to $1.54 billion.

Mixed Analyst Estimates

Analysts expect CVS’ EPS for fiscal 2023 and 2024 to decline 1% and 1.3% year-over-year to $8.60 and $8.50, respectively. Its fiscal 2023 and 2024 revenue is expected to increase 9.9% and 2.3% year-over-year to $354.42 billion and $362.59 billion, respectively.

Discounted Valuation

In terms of forward non-GAAP P/E, CVS’ 8.50x is 54.7% lower than the 18.74x industry average. Its 7.92x forward EV/EBITDA is 40.5% lower than the 13.31x industry average. Likewise, its 9.09x forward EV/EBIT is 45.6% lower than the 16.72x industry average.

Mixed Profitability

In terms of the trailing-12-month EBITDA margin, CVS’ 5.29% is 3.2% higher than the 5.13% industry average. Likewise, its 1.44x trailing-12-month asset turnover ratio is 268.3% higher than the industry average of 0.39x.

CVS’ 0.81% trailing-12-month Capex/Sales is 80.6% lower than the 4.18% industry average. Likewise, its 15.29% trailing-12-month gross profit margin is 73.3% lower than the 57.28% industry average. Furthermore, the stock’s 2.44% trailing-12-month net income margin compares to the negative industry average of 5.56%.

POWR Ratings Reflect Uncertainty

CVS has an overall rating of C, equating to a Neutral in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. CVS has a C grade for Quality, consistent with its mixed profitability.

It has a C grade for Sentiment, in sync with its mixed analyst estimates.

CVS is ranked first out of 3 stocks in the Medical – Drug Stores industry. Click here to access CVS’ Growth, Value, Momentum, and Stability ratings.

Bottom Line

CVS expects its growth to be driven by Cordavis, which offers affordable biosimilars. However, its Pharmacy and Consumer Wellness segment continues to face margin pressure due to factors like continued pharmacy reimbursement pressure, the impact of recent generic introductions, a decrease in store counts, etc. Moreover, the company is expected to keep facing headwinds in the healthcare benefits business.

Although CVS currently trades at a discounted valuation, it could be wise to wait for a better entry point in the stock, given its mixed financials, analyst estimates, and profitability.

How Does CVS Health Corporation (CVS) Stack Up Against Its Peers?

CVS has an overall POWR Rating of C, equating to a Neutral rating. You may check out these A and B-rated stocks within the Medical – Consumer Goods industry: Nature's Sunshine Products, Inc. (NATR), LifeVantage Corporation (LFVN), and Natural Health Trends Corp. (NHTC). For exploring more Buy-rated Medical – Consumer Goods stocks, click here.

What To Do Next?

43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.

2024 Stock Market Outlook >


CVS shares were trading at $73.44 per share on Tuesday morning, up $1.00 (+1.38%). Year-to-date, CVS has declined -6.15%, versus a 3.65% rise in the benchmark S&P 500 index during the same period.



About the Author: Dipanjan Banchur

Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.

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