The company also serves millions of people through traditional, voluntary, and consumer-directed health insurance products and related services (via its Aetna biz).
We chose CVS as a Top Pick at the start of the year. The shares have since risen 22%. Our rationale for our recommendation of CVS remains unchanged.
Despite concerns about the regulatory environment, ongoing opioid litigation, and the competitive landscape, including the potential of Amazon (AMZN) to enter the prescription game, the diversified healthcare player was then trading for a very inexpensive multiple of earnings, despite consistently beating EPS estimates, while also providing a generous dividend payout.
The company was also offering COVID-19 vaccinations that drove additional folks into its stores and management reported that its retail locations administered 23 million COVID tests and 17 million vaccines in Q1, no doubt contributing to another terrific quarter.
With Q1 adjusted earnings per share coming in at $2.04, versus expectations of $1.71, and revenue also topping estimates, we retain our enthusiasm for CVS. We continue to believe that the company is a free-cash-flow generating behemoth with strong potential to evolve its business to a broader health care delivery model.
The company’s updated EPS guidance now stands at $7.56 to $7.68 (previously it was between $7.39 and $7.55), while cash flow from operations guidance stands at $12.0 billion to $12.5 billion.
We think CVS shares are underappreciated as they trade for around 11 times NTM adjusted earnings estimates and yield 2.3%. Our target price for CVS has been boosted to $121 and we continue to rate the stock as a “Buy.”