1. CVS Health Corporation (NYSE:CVS)
Forward P/E: 8.97
Analysts’ Upside Potential: 6.58%
Number of Hedge Fund Holders: 60
CVS (NYSE:CVS) is a retailer that operates in four segments: health care benefits, health services, pharmacy & consumer wellness, and corporate/other. Its healthcare benefits segment offers various voluntary, traditional, and consumer-directed health insurance products and related services. These include medical, pharmacy, medical management capabilities, dental and behavioral health plans, Medicare Advantage, Medicaid health care management services, and Medicare supplement plans.
The Health Services segment specializes in a complete range of pharmacy benefit management solutions and delivers healthcare services in its medical clinics, at home, and virtually, offering provider enablement solutions. In contrast, the Pharmacy & Consumer Wellness segment dispenses prescriptions in retail pharmacies. It also provides diagnostic testing, pharmacy patient care programs, and vaccination administration.
All standalone stores operated by CVS (NYSE:CVS) across its national footprint are profitable, reflecting its strong operational model, business leadership, and exceptional customer service. Total revenue reached more than $91 billion in the first half of 2024, along with $8 billion in operating cash flow. Continuing its growth model, CVS expects membership growth in its commercial business in 2025, primarily driven by new business wins and strong retention.
CVS has identified a multi-year opportunity to save $2 billion. This initiative will be driven by optimizing and streamlining its processes and operations, accelerating the use of artificial intelligence and automation across its operations, and continuing to rationalize its business portfolio. The savings will allow the company to invest in new opportunities and businesses, further driving growth and profitability.
The stock currently trades at a forward P/E of 8.97 at a 58.28% discount to its sector. Its median price target of $58.64 implies an upside of 6.58% from current levels.
Ariel Global Fund stated the following regarding CVS Health Corporation (NYSE:CVS) in its Q2 2024 investor letter:
“American healthcare company, CVS Health Corporation (NYSE:CVS), also declined following disappointing earnings results and a subsequent reduction in full year guidance. The miss was primarily due to increased utilization of Medicare Advantage plans and weakness in the health services segment driven by the loss of a large client and continued pharmacy client price improvements. In response, management reiterated its focus on improving margins and enhancing its positioning in Medicare Advantage. CVS believes the program can remain an attractive business for Aetna and CVS Health over time and will construct its bid for 2025 as a multi-year repricing opportunity across plan level benefits. Meanwhile, CVS continues to return capital to shareholders through dividends and a recent accelerated share repurchase transaction”.
Overall, CVS ranks first among the 7 cheap reliable stocks to invest in. While we acknowledge the potential of retail companies, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than CVS but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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