CVS Health is set to report its Q1 2024 results, with revenues expected to come in at $90 billion, slightly above the consensus estimate of $89.2 billion, marking a 5.5% year-over-year growth. Earnings are anticipated to be around $1.74 per share on an adjusted basis, slightly higher than the $1.71 consensus estimate, but lower than the prior-year quarter earnings of $2.20. The company’s stock performance has been volatile, with returns of 51% in 2021, -10% in 2022, and -15% in 2023, underperforming the S&P 500.
In recent years, beating the S&P 500 has been challenging for individual stocks, including heavyweights in the Health Care sector, such as LLY, UNH, and JNJ. However, the Trefis High Quality Portfolio, made up of 30 stocks, has consistently outperformed the S&P 500 each year. CVS stock is currently undervalued, with a valuation estimated to be $88 per share, about 30% above its current price of $67. Despite the uncertain macroeconomic environment, the company’s forward expected earnings of $8.35 per share for the full-year 2024 suggest potential for strong growth.
In Q4, CVS Health reported revenue of $93.8 billion, up 12% year-over-year, with growth across all segments. The adjusted operating margin declined slightly to 4.5%, partly due to a rise in the medical benefit ratio. In the upcoming quarter, the company is expected to benefit from continued growth in healthcare and pharmacy services, driven by increased prescription volume and drug price inflation. However, higher costs, particularly benefits costs, may impact overall performance, with a medical benefits ratio expected to be over 86% in Q1.
While earnings may decline in Q1 due to increased medical costs, CVS Health is seen as an attractive investment for long-term gains. The stock is considered undervalued, trading at around 8x its forward expected earnings, lower than its average P/E multiple of 10x over the last five years. Investors may find CVS stock appealing, especially considering potential for robust growth in the future. Comparing the company to its peers in the industry can provide further insights into its performance and valuation.
