CVS Health recently reported its Q1 results, with revenues and earnings missing estimates. The company reported revenue of $88.4 billion and adjusted earnings of $1.31 per share, much lower than analyst estimates. Additionally, CVS cut its full-year guidance, which caused concern among investors. Despite cutting its price estimate by 18% following the results, it still remains above the current market price. In this article, we will look at CVS’ stock performance, key takeaways from its recent results, and its valuation.
In recent years, CVS stock has seen a decline of 20% from around $70 in early January 2021 to about $55 now. This is in contrast to a 35% increase in the S&P 500 over the same period. The stock’s returns have been inconsistent, with 51% in 2021, -10% in 2022, and -15% in 2023. In comparison, the S&P 500 saw returns of 27% in 2021, -19% in 2022, and 24% in 2023. CVS has consistently underperformed the S&P in 2023 and previous years.
Given the current macroeconomic environment with high oil prices and elevated interest rates, there is uncertainty surrounding CVS’ performance in the next 12 months. However, from a valuation perspective, there seems to be room for growth. Analysts estimate CVS Health’s valuation to be $72 per share, reflecting over 25% upside from its current price of $56. The estimate is based on a 9x P/E multiple for CVS and expected earnings of $7.70 per share for the full year 2024.
In Q1, CVS Health reported revenue of $88.4 billion, up 4% year-over-year, with growth in Health Care Benefits and Pharmacy & Consumer Wellness segments. However, Health Services revenue plunged 10% and the adjusted operating margin declined by 180 bps to 3.3%. This decline can be attributed to a 580 bps rise in the medical benefit ratio to 90.4%, which was higher than street estimates. The company’s adjusted profit fell significantly by 40% to $1.31 per share.
Looking ahead, CVS has revised its outlook for 2024, expecting earnings to be in the range of $7.00 and $8.30 per share, compared to $8.74 in 2023. The decrease in earnings can be attributed to higher expected medical costs. Despite facing headwinds, CVS stock seems to have room for growth as it is currently trading at 7x forward earnings, compared to the five-year average of 10x. While a slight decline in valuation multiple may be justified, 7x seems to be an overestimation.
While CVS stock shows potential for growth, it is important to compare how CVS Health’s peers are performing on key metrics. This can provide valuable insights for investors looking to make informed decisions. Overall, CVS Health’s recent Q1 results and updated outlook have raised concerns among investors, but analysts believe that there is still room for growth in the stock based on its valuation and performance metrics.
