Why I Am Now Interested In CVS Health Corp (CVS)

CVS Health Corp (NYSE:CVS): Attractive Dividend Growth and Total Return Opportunity

Since CVS has recently moved into fair valuation territory, I have become interested in conducting a comprehensive research and due diligence process.  That is not the same as saying I am recommending it as a strong buy. On the other hand, I am reasonably confident that a purchase made today would generate attractive long-term future returns.  It is possible that the stock could drop further based on negative investor sentiment.  But, it is also possible that the price has bottomed out.

As investors, we must accept the reality that finding perfect tops or bottoms is rarely possible notwithstanding luck.  But more importantly, you don’t have to find the perfect bottom in order to make attractive long-term returns.  Potential short-term pain can easily lead to exceptional long-term gain as long as your original purchase is made at a sound valuation. Personally, I believe that CVS’s stock price is currently at a sound level.

As a result, I have started a comprehensive research and due diligence process and so far I like what I see.  With the remainder of this article, I will share much of what I found thus far, but also caution that this is still a work-in-progress. However, before I attempt to dig too deep into the workings of the company, I like to review important financial metrics such as the balance sheet, cash flow statement, profitability, and income statement.

The Balance Sheet

I believe that CVS’s balance sheet is strong and healthy.  Assets per share (atps) and book value or common equity per share (ceps) are both steadily increasing.  Long-term debt per share (dltps) and total debt per share (dtps) are at reasonable levels. Furthermore, the company’s increase in debt in 2015 is primarily attributable to their acquisitions of Omnicare and Target’s pharmacy and clinical businesses. Both of these acquisitions hold the promise to expand CVS’s customer base and retail channels going forward.

Cash Flow Statement

Since dividends represent an important component of the allure for investing in CVS, I was gratified to see that cash flow per share (cflps) more than adequately covers their dividends.