CVS Health (NYSE: CVS) is scheduled to report its Q1 2023 results on Wednesday, May 3. We expect CVS stock to trade sideways post the results announcement, with Q1 revenue and earnings aligning with the consensus estimates. While we expect the company to post steady growth for its healthcare and pharmacy services businesses, higher costs likely weighed on its overall performance. Although we expect CVS to report an in-line Q1, CVS stock looks undervalued, as discussed below. Our interactive dashboard analysis on CVS Health’s Earnings Preview has additional details.
(1) Revenue expected to trend higher in Q1
- Trefis estimates CVS’ Q1 2023 revenues to be around $80.8 billion, reflecting a mid-single-digit y-o-y growth, and it compares with the $80.9 billion consensus estimate.
- CVS should benefit from increased prescription volume and drug price inflation. Its healthcare segment should also see steady growth driven by a rise in total membership.
- Looking back at Q4 2022, CVS reported a 9% y-o-y rise in sales to $83.8 billion, led by higher retail, pharmacy services, and health care benefits revenue.
- Our dashboard on CVS Health’s Revenues offers more details on the company’s segments.
(2) EPS likely to align with the consensus estimates
- CVS’ Q1 2023 adjusted earnings per share is expected to be $2.10 per Trefis analysis, aligning with the consensus estimate. This compares with the $2.22 figure the company reported in the prior-year quarter.
- CVS’ adjusted net income of $2.6 billion in Q4 2022 reflected a 0.8% y-o-y decline, as higher revenue growth was offset by a 63 bps decline in operating margin to 4.8%. However, the medical cost ratio improved by 100 bps y-o-y.
- For the full-year 2023, we expect the adjusted EPS to be $8.83, compared to $8.70 in 2022.
(3) CVS stock is undervalued
- We estimate CVS Health’s Valuation to be $122, a significant 66% above the current market price of $73.
- At its current levels, CVS stock is trading at 8x its expected forward earnings of $8.83 on a per share and adjusted basis for full-year 2023, compared to the last two-year average of a little over 11x.
- Given its transformation from a retail pharmacy to a broader healthcare provider, we have assigned a slightly higher multiple for CVS (vs. its historical average). Its new acquisitions will further strengthen its business and help expand its net margins, resulting in robust earnings growth beyond 2024.
While CVS stock looks undervalued, it is helpful to see how CVS Health’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.
Furthermore, the Covid-19 crisis and recent market volatility have created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised how counter-intuitive the stock valuation is for Target vs. Emergent Biosolutions.
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