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

Profitability

The retail pharmacy chain and pharmacy benefit management businesses do not produce exceptionally high gross profit margins (gpm) or net profit margins (npm). However, the consistency and predictability of these businesses still allows for high rates of bottom line growth.  Gross profit margins for CVS have weakened slightly in recent years, but net profit margins have remained consistent.  Moreover, I consider these reasonable margins a plausible defense against political onslaught considering the important nature of the business.

On the other hand, return on equity (roe) and return on invested capital (roi) have been improving in recent years.

The Income Statement

From the income statement perspective, I have previously covered CVS’s consistent and high earnings growth.  Additionally, cost of goods sold (cogsps) has also been rising, but revenue growth (revps) has been following suit.

Shareholder Friendly Management

Generally speaking, I consider the CVS management team as very shareholder friendly. Since fiscal year 2000, the company’s dividend has grown at an average rate of 17.8% translating to a compound annual growth rate of 16.9%.  However, the dividend was frozen from fiscal year 2000 through 2003 – which included the recession of 2001. On the other hand, the company did raise their dividend throughout the Great Recession at double-digit rates.