Founded since 1963, CVS Health Corporation (NYSE:CVS) is one of the largest integrated pharmacy and health care service providers in the United States. It is also included in the S&P 500 Index since 16 March 2015 – so in a way, it is one of the ‘blue chip’ companies in the country.

Photo by Melany @ tuinfosalud.com on Unsplash

The company’s 3 primary businesses are as follows:

(i) Health Care Benefits – it offers a broad range of traditional, voluntary, and customer-directed health insurance products and related services, serving more than 35 million people currently;

(ii) Pharmacy Services – this business focuses on providing a full range of pharmacy benefit management services (in layman terms, it helps to make sure affordable and easy access to medications prescribed by medical professionals) to individuals, employers, insurers, and government entities;

(iii) Retail/LTC (Long-Term Care Pharmacy) – it sells prescription drugs and a wide assortment of health and wellness products and general merchandises. It is a provider of health services through its MinuteClinic retail health clinics.

In FY2023 (ended 31 December 2023), all 3 business segment contribute evenly towards the company’s total revenue, with Health Care Benefits, Pharmacy Services, and Retail LTC contributing US$105.6 billion, US$169.2 billion, and US$116.8 billion respectively.

Now that you have an understanding about the CVS Health Corporation’s businesses, in the rest of this post, you will find a review of its ‘financial fitness’ – in terms of its financial performance, debt profile, and dividend payouts to shareholders over the last 5 years (between FY2019 and FY2023 – the company has a financial year end every 31 December) to find out the ‘good’, as well as ‘not so good’ aspects about it.

On top of that, I will also be sharing with you whether the healthcare company’s current traded price is trading at a discount or at a premium, as well as my ‘fair value price’ based on its valuations over the last 5 years.

Let’s get started:

Financial Performance

In this section, you will find an analysis of CVS Health Corporation’s total revenue and net profit, gross and net profit margin, and return on equity (or RoE for short) recorded over the last 5 years:

Total Revenue & Net Profit (US$’mil):

	FY2019	FY2020	FY2021	FY2022	FY2023
Total Revenue (US$’mil)	$256,776m	$268,706m	$292,111m	$322,467m	$357,776m
Net Profit (US$’mil)	$6,634m	$7,179m	$8,001m	$4,311m	$8,344m

CVS Health Corporation’s total revenue saw a steady climb every single year over the last 5 years. Not only that, its year-on-year (y-o-y) improvements in percentage terms have also been on a steady upward climb – from 4.6% in FY2020 to 10.9% in FY2023.

In terms of growth in compound annual growth rate (CAGR), it was at 6.9%.

The company’s net profit saw y-o-y growth in 4 out of 5 years – the only year where its net profit declined was in FY2022 (by about 46%), due to one-time charges of $5.8 billion related to Opioid litigation, and a $2.5 billion loss on asset sale (where the company wrote down its Omnivore long-term health business), as well as a decline in operating income due to decreased Covid-19 services (as vaccination and testing declined in FY2022), pharmacy reimbursement pressure (by insurance company on medication reimbursement rates), and the absence of gains from legal settlements recorded a year ago.

Despite of that, its net profit still manage to record a 4.7% CAGR over a 5-year period.

Gross & Net Profit Margins (%):

	FY2019	FY2020	FY2021	FY2022	FY2023
Gross Profit Margin (US$’mil)	38.2%	39.0%	39.8%	38.9%	39.3%
Net Profit Margin (US$’mil)	2.6%	2.7%	2.7%	1.3%	2.3%

Gross profit margin saw improvements every single year except for FY2022 (due to the company receiving less money for each dispensed medication from insurers, increase in overall costs, and Covid-19 impact normalisaton). Regardless, throughout the entire 5-year period, it was maintained at a high 30+% level.

The same cannot be said for its net profit margin, however, as it hoovered at just around 2+% in 4 out of 5 years – which is on the low side in my opinion.

Return on Equity (%):

For those who are new to investing, basically, Return on Equity (or RoE for short) is a measure of how much profits (in percentage terms) a company is able to generate for every dollar of shareholders’ money it uses in its businesses.

Personally, my preference is towards companies that are able to maintain its RoE at 15.0% or above over the years.

Let us take a look at CVS Health Corporation’s RoE which I have computed over the last 5 years:

	FY2019	FY2020	FY2021	FY2022	FY2023
Return on Equity (%)	10.4%	10.3%	10.7%	6.0%	10.9%

CVS Health Corporation’s RoE has hovered around 10% in 4 out of 5 years (the only year which its RoE fell under 10% was in FY2022, due to its net profit plummeting by 46.1% compared to the year before), which I consider to be on the low side.

Debt Profile

When it comes to reviewing a company’s debt profile, my preference is towards those with little or not debt (the latter preferred), as well as one in a net cash position.

The following table is CVS Health Corporation’s debt profile over the last 5 years (between FY2019 and FY2023):

	FY2019	FY2020	FY2021	FY2022	FY2023
Cash & Cash Equivalents (US$’mil)	$8,408m	$11,043m	$12,691m	$13,305m	$8,525m
Total Borrowings (US$’mil)	$68,480m	$64,647m	$56,176m	$50,476m	$58,838m
Net Cash/ Debt (US$’mil)	-$60,072m	-$53,604m	-$43,485m	-$37,171m	-$50,313m

The healthcare company has been in a net debt position throughout the entire 5-year period I have looked at.

Another thing to highlight is that the company’s company’s current ratio of 0.9 for the 5 years raises concerns about its ability to meet its short-term debt obligations if needed.

Dividend Payout to Shareholders

The management of CVS Health Corporation pays out a dividend to its shareholders on a quarterly basis (which is good for income investors). However, if you are a Singaporean investor, do note that all dividends are subject to a 30% withholding tax (meaning the amount you eventually receive will be 30% lesser).

Here is the healthcare company’s dividend payout over the last 5 years:

	FY2019	FY2020	FY2021	FY2022	FY2023
Dividend Per Share (US$/share)	$2.00	$2.00	$2.00	$2.20	$2.42

Dividend payout remained stagnant at $2.00/share in FY2019, FY2020, and FY2021, before increasing by 10.0% each year over the next subsequent 2 years (to $2.20/share in FY2022, and then to $2.42/share in FY2023).

In terms of growth, over the last 5 years, its dividend payout saw a CAGR of 3.9%.

Is the Current Traded Price of CVS Health Corporation at a Discount or Premium?

At the time of writing (19 March 2024), CVS Health Corporation is trading at US$78.06, and the following table is a comparison of its current valuations (based on its current traded price) against its 5-year average:

	Current	5-Year Average
P/S Ratio	0.28	0.4
P/B Ratio	1.28	1.8
Dividend Yield	3.1%^^	2.2%

Looking at the above, the current traded price of CVS Health Corporation is at a ‘discount’ due to its lower-than-average current P/S (Price-to-Sales) and P/B (Price-to-Book) ratios, along with a higher-than-average current dividend yield.

Finally, my ‘fair value price’ of the company based on its 5-year valuations is at US$110.97. Hence, at its current price, it is trading at a 29.7% discount.

Closing Thoughts

Every company have their fair share of ‘good’ and ‘not so good’ points (just like all of us have our fair share of strengths and weaknesses) – the same goes for CVS Health Corporation.

In terms of its pros, it will be the company’s growing financial performances, stable gross profit margins, and also an increasing dividend payout (particularly over the last 2 years).

On the other hand, its net profit margin and return on equity are on the low side (with the former at below 10%, and the latter at below 15%), and at the same time, it is in a net debt position throughout the entire 5-year period I have looked at.

Finally, looking at its current valuations, and comparing them against its 5-year average, the current traded price of CVS Health Corporation is at a discount – due to its current P/S and P/B ratios being lower than its 5-year average, and at the same time, its current dividend yield higher than its 5-year average. Based on my ‘fair value price’ of the company (at US$110.97), it is trading at a 29.7% discount at the moment.

I hope the information above have given you a good understanding of the US-listed healthcare company. Please note that all the information above are meant for educational purposes only, and that you are strongly encouraged to do your own due diligence before making any investment decisions.

Disclaimer: At the time of writing, I am not a shareholder of CVS Health Corporation.

Join Me 'Live' at REITs Symposium 2025 – 24 May | 3:15PM – 3:45PM @ Engagement Stage

Amid escalating trade tensions and renewed market volatility triggered by the latest wave of tariff announcements, how should investors navigate the REITs space?

I'll be sharing my insights and strategies for staying resilient with REIT investments in these uncertain times during my presentation at the Engagement Stage — located right at the entrance of the event.

🎟️ Find out more about the event, and grab your tickets for just S$5 here...

Are You Worried about Not Having Enough Money for Retirement?

You're not alone. According to the OCBC Financial Wellness Index, only 62% of people in their 20s and 56% of people in their 30s are confident that they will have enough money to retire.

But there is still time to take action. One way to ensure that you have a comfortable retirement is to invest in real estate investment trusts (REITs).

In 'Building Your REIT-irement Portfolio' which I've authored, you will learn everything you need to know to build a successful REIT investment portfolio, including a list of 9 things to look at to determine whether a REIT is worthy of your investment, 1 simple method to help you maximise your returns from your REIT investment, 4 signs of 'red flags' to look out for and what you can do as a shareholder, and more!

You can find out more about the book, and grab your copy (ebook or physical book) here...