Key Takeaways
CVS Health is scheduled to report first-quarter results on May 6, with analysts forecasting earnings of $2.18 per share on revenue of $95 billion. The stock has gained 26 percent over the past year, including a 17 percent rally in April, as investors look past its complex structure to its growth potential.
"We believe the earnings power story is meaningfully underappreciated," Michael Cherny, an analyst at Leerink Partners, wrote in a recent report. He argues that the combination of CVS's retail, insurance, and healthcare service units offers more long-term upside than the market currently reflects.
The health care giant is navigating a slow-growth first quarter but analysts project a rebound, with consensus estimates calling for a 6 percent increase in full-year earnings, followed by 14 percent growth the following year. Growth is expected to be driven by strength across its diverse business segments, including its Aetna insurance unit, which stands to benefit from higher Medicare Advantage payments. This trend has also lifted peers like Humana and UnitedHealth Group.
Despite its recent stock performance, CVS trades at a significant discount to its competitors. The stock is valued at just 11 times forward earnings estimates, compared to 19 times for UnitedHealth and 22 times for Humana. This valuation gap persists even as the company gains prescription market share from the bankruptcy of Rite Aid and store closures by Walgreens Boots Alliance.
Some analysts see a clear path for the stock to rise without a major re-rating. UBS analyst Kevin Caliendo holds a $97 price target on CVS, representing about 16 percent upside from its recent price of $83.90. His target is based on a modest price-to-earnings ratio of 12 times his forward earnings estimates.
The upcoming earnings report will be a key test for the company's integrated strategy. Investors will be watching for commentary on profit margins in the Medicare Advantage business and continued market share gains in the pharmacy segment to see if the recent rally can be sustained.
This article is for informational purposes only and does not constitute investment advice.
