CVS Health (NYSE: CVS) has been caught in a couple of controversies over the last month. CVS was recently sued by the New York Attorney General for allegedly breaching antitrust laws. Additionally, laxatives sold by the company have been recalled after a suspected contamination of the products. This culmination of bad news and other factors has had an adverse effect on the company's stock price as it's currently down -10.31% for the last six months. Still, there are some investors who are loading up their bags with CVS in expectation of it charting higher for the years to come. In this article we'll examine some of the reasons why, as well as the downsides of adding it to one's portfolio.
Poor Expected Growth Rate
First, let’s start with the weaknesses of CVS. The company is struggling with growing its revenues on a forward and yearly basis, and its numbers don't stack up attractively to its peers in the same industry sector. CVS's YoY revenue growth is 10.61% while the sector surges to 17.07%. The company's FWD revenue growth expectations are even bleaker at 6.26% compared to 14.80%.
In addition to failing to competitively grow its top line it's also struggling to grow some of its earnings metrics such as EBITDA despite having strong margins. CVS's FWD EBITDA growth is 4.72%, while the industry leads the way with 10.78%. This may be disappointing as its net income margin is 2.68%, while the sector struggles with this metric at -1.87%.
Revisions and Momentum Is On CVS’s Side
The other side to the argument is that CVS has received numerous positive revisions for its EPS and revenue targets over the last three months. The company earned 22 positive EPS revisions and 17 positive revenue revisions. Overall, Wall St considers CVS a buy judging by its ratings. 10 analysts gave the stock a strong buy, and 8 gave it a buy rating. The rest rated the stock as a hold, while no analysts gave it a sell or strong sell rating.
For the more momentum-inclined investors, CVS might be worth a look. CVS is outperforming its peers in the same sector when it comes to price performance. It's beating the sector by 45.85% over 9 months and 49.66% over 12 months. Compared to the S&P 500, the company's gains are beating the market in a longer timeframe. CVS returned a 72% yield over three years, while the S&P 500 returned 34.59%. Over ten years, though, the company returned less, with 112.57% compared to the index's 193.83% return.
CVS Vs. Walgreens Boots Alliance Inc
Wallgreens Boots Alliance Inc (NASDAQ: WBA) makes an interesting comparison with CVS. WBA's market cap is significantly smaller than CVS with 33.90B compared to 125.72B. The losses for WBA have been steeper YTD with -23.62% compared to 5.87% for CVS. Additionally, the long-term return of the stock is also reduced, as over 10 years, WBA gave a 43.13% yield while CVS returned 166.34%.
In terms of dividends, CVS is stronger, but WBA's dividend is growing faster. The dividend rate and yield for CVS are $2.15 and 2.24%. The same stats for WBA are $1.92 and 3.65%. As a measure of the growth rate for the dividends on a 5-year basis, WBA's CAGR is 4.95%, while CVS lags at 2.24. This may partially be because WBA has seven years of consecutive dividend growth while CVS has only one.
For valuation WBA is the clear winner with an FWD P/E ratio of 6.45 compared to CVS's FWD P/E of 13.68. WBA is also cheaper on a Price / Sales basis with a ratio of 0.25 compared to 0.42.