CVS Health stock (NYSE: CVS) is currently considered to be a better pick over its competitor UnitedHealth Group stock due to its attractive valuation. While UnitedHealth has experienced better revenue growth and profitability, CVS is trading at a more favorable multiple of just 0.2x revenues compared to 1.3x for UnitedHealth. Despite recent declines in both stocks, CVS is believed to offer better returns over the next three years.
UnitedHealth stock has consistently outperformed CVS, with gains of 45% compared to a decline of 20% over a three-year period. While UnitedHealth saw strong growth in 2021, both companies underperformed the S&P 500 in 2022 and 2023. The Trefis High Quality Portfolio, on the other hand, has consistently outperformed the benchmark index, indicating the potential for stable returns in uncertain market conditions.
UnitedHealth has shown better revenue growth with a 13% average annual growth rate over the past three years, compared to 10% for CVS. The company’s OptumHealth business has been a key driver of revenue growth, experiencing a 67% increase between 2020 and 2023. CVS, on the other hand, saw revenue growth driven by increased demand for Covid-19 testing and vaccine administration, which has since declined.
In terms of profitability, UnitedHealth has a higher operating margin and a stronger financial position compared to CVS. The company’s lower debt-to-equity ratio and higher cash as a percentage of assets indicate a better financial risk profile. Furthermore, UnitedHealth’s lower medical care ratio suggests more efficient management of medical costs compared to CVS.
Despite UnitedHealth’s stronger revenue growth and profitability, CVS is seen as a better pick based on its valuation and potential for growth. With a lower current valuation multiple and room for growth to return to historical levels, CVS is believed to offer better returns over the next three years. Investors are advised to consider CVS for long-term gains, as the company is expected to benefit from the growth of its healthcare and pharmacy services businesses.
