3 Reasons Why We Like CVS After The Earnings Report (NYSE:CVS)



CVS Health’s (NYSE:CVS) share value has remained flat 12 months up to now, outperforming the broader market considerably, which has declined by as a lot 13% in the identical interval.

CVS knowledge by YCharts

In this text, we are going to current three the reason why we suppose CVS’s stock might be a horny funding within the present market setting and why we anticipate the stock to maintain outperforming within the close to time period.

1.) Increasing income

In the (*3*), income has elevated by as a lot as 11% vs. the prior 12 months, reaching $80.6 billion. All three segments of the agency have been contributing to this development.

  • In the well being care advantages section income has elevated by 10.9%, reflecting development throughout all product traces.
  • In the Pharmacy service section income grew by 11.7% fueled by elevated, pharmacy claims quantity, development in specialty, pharmacy and model inflation, partially offset by continued shopper value enhancements
  • The section representing the bottom development was the retail/LTC section, rising by “only” 6.3% 12 months over 12 months. The main drivers for this section had been: elevated prescription and entrance retailer quantity, together with the sale of COVID-19 OTC check kits, and the influence of an prolonged cough, chilly, and flu season in comparison with prior 12 months. On the opposite hand, decreased COVID-19 vaccinations and diagnostic testing had been partially offsetting the beforehand talked about optimistic impacts.

We anticipate CVS to proceed doing properly and develop within the present market setting. While the pandemic fueled traits could also be disappearing, we consider that the demand for the corporate’s services on the whole is comparatively inelastic. Therefore, CVS shouldn’t be more likely to be materially impacted by the low or declining shopper confidence.

Performance in periods of low shopper confidence

Consumer confidence is a number one financial indicator, usually used to foretell close to time period modifications within the shopper spending behaviour. A low or falling shopper confidence is more likely to result in diminished spending on sturdy, discretionary, non-essential items, doubtlessly hurting the monetary efficiency of corporations manufacturing and promoting such merchandise. But as most services offered by CVS are thought of important, we anticipate shopper sentiment to have little affect on CVS’s efficiency the close to time period.

Let us have a look how CVS’s stock value has truly developed throughout instances of low shopper confidence within the final 20 years.


CVS knowledge by YCharts


CVS knowledge by YCharts


CVS knowledge by YCharts

CVS has considerably outperformed the broader market 2 out of 3 instances. Although previous efficiency shouldn’t be at all times helpful for forecasting functions, we consider that CVS is well-situated within the present market setting to carry out properly.

We consider that the efficiency from the interval of 2001-2003 shouldn’t be essentially consultant, as a result of CVS enterprise was going by a way more tough instances than at present, together with a greater than 16% decline in gross sales and an announcement of greater than 200 retailer closures.

Not solely us, however the administration additionally seems to be optimistic about the remainder of 2022. And this takes us to the second the reason why we like CVS.

2. Improved steering

The agency has introduced a favourably up to date steering for the remainder of the 12 months on their earnings name in August.

table guidance

Guidance (CVS)

Across all metrics, now CVS is predicted to develop greater than beforehand anticipated. Important to level out that, whereas in accordance with the earlier steering adjusted working revenue and adjusted EPS had been forecasted to say no or stay flat, now even a rise seems to be potential.

The largest driver of the optimistic change was the rise in adjusted working revenue within the retail/LTC section and it already displays up to date COVID-19 assumptions and better ranges of funding spending within the again half of the 12 months. The well being care advantages section steering remained unchanged, whereas within the pharmacy companies section on the full pharmacy claims processed have been up to date.

Also, as CVS primarily operates within the United States and North America, their monetary efficiency, resulting from currency alternate dangers and the robust USD, shouldn’t be more likely to be impacted straight.

All in all, we consider that the up to date steering is a optimistic signal and implies that the agency is assured within the continued robust demand for his or her services for the remainder of the 12 months.

In our opinion, the outcomes of the second quarter and the steering supplied, additional consolidate CVS as a market chief within the U.S. prescribed drugs market.

tornado market share

Market share as of 2021 (statista.com)

And now coming to our final level: dividends.

3. Dividends

CVS has been a preferred alternative amongst traders searching for security and dividends. The agency has been paying quarterly dividends to its shareholders since 1997, creating important returns moreover to the realized capital features. The firm’s present quarterly dividend is $0.55 per share, akin to a yield of about 2.2%, yearly.

bar chart dividend history

Dividend historical past (seekingalpha.com)

Also vital to notice that the present payout seems to be secure and sustainable within the close to time period. The following desk summarizes the important thing dividend payout ratios.

table dividend safety

Dividend security (seekingalpha.com)

CVS’s Dividend Payout Ratio (TTM) (GAAP) is 35% – about according to the sector median – and about 16% beneath its personal 5-year common.

For these causes, we consider that CVS might be a horny addition to dividend portfolios.

Before concluding, allow us to take a short take a look at the valuation of the agency.


CVS’s stock is buying and selling at a big low cost in comparison with its respective sector median in accordance with all the conventional value multiples.

table valuation

Valuation (seekingalpha.com)

Considering that analysts are forecasting each income and EPS to extend within the years to return and a robust observe document of latest upward revisions, we consider that CVS might be comparatively secure alternative at these valuations.

Key takeaways

The demand for CVS’s services has remained excessive, regardless of the diminishing impacts of COVID-19 induced traits.

In distinction to many corporations, particularly to retailers which were scuffling with stock administration and a declining demand, partially pushed by a traditionally low shopper confidence, CVS seems to be a horny funding choice within the present market setting. The favourably up to date steering additional strengthens this thesis.

The secure and sustainable dividend might make the agency interesting for dividend and dividend development traders.

Source link


Please enter your comment!
Please enter your name here