Is CVS Health (CVS) Pricing Reflect Its Integrated Healthcare Model After Recent Share Gains

• If you are wondering whether CVS Health's current share price offers good value or not, you are not alone. This article is designed to help you size up the stock using a few different valuation angles.
• Over the past year, CVS Health shares have returned 21.6%. The stock is up 0.9% over the last 7 days, down 1.1% over 30 days, and down 3.0% year to date from a last close of US$77.75, which may hint at shifting views on both its upside and its risks.
• Recent headlines have focused on CVS Health's role as a major US healthcare and pharmacy group, including its integrated insurance, pharmacy benefit management, and retail operations. These updates give extra context for the recent price moves, as investors weigh how its position in the healthcare system translates into long term value.
• Our valuation checkup gives CVS Health a score of 3 out of 6. This reflects areas where the shares look inexpensive and others where the price already bakes in a lot of expectations. Next we will look at standard valuation methods and then finish with a more comprehensive way to think about what the stock might be worth.

CVS Health delivered 21.6% returns over the last year. See how this stacks up to the rest of the Healthcare industry.

Approach 1: CVS Health Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow, or DCF, model takes estimates of a company’s future cash flows and discounts them back to today to arrive at an estimate of what the business might be worth right now.

For CVS Health, the model uses a 2 Stage Free Cash Flow to Equity approach. It starts with last twelve months free cash flow of about $7.6b. Analyst estimates and extrapolations extend this to projected free cash flow of $20.2b in 2035, with interim projections such as $6.97b in 2026 and $13.96b in 2030. Simply Wall St uses analyst forecasts where available and then extrapolates beyond those years.

When these projected cash flows are discounted back to today, the DCF model arrives at an estimated intrinsic value of about $289.01 per share. Compared with the recent share price of $77.75, this implies the stock is 73.1% undervalued according to this method.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests CVS Health is undervalued by 73.1%. Track this in your watchlist or portfolio, or discover 53 more high quality undervalued stocks.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for CVS Health.

Approach 2: CVS Health Price vs Earnings

For profitable companies, the P/E ratio is a useful way to think about value because it links what you pay for each share to the earnings that business is currently generating.

What counts as a normal or fair P/E depends on what investors expect for future earnings and how much risk they see in those earnings. Higher growth or lower perceived risk can support a higher P/E, while slower growth or higher risk usually points to a lower one.

CVS Health currently trades on a P/E of 55.95x. That is above the Healthcare industry average of 23.51x and also above the peer average of 18.89x. Simply Wall St also calculates a Fair Ratio for CVS Health of 42.88x, which reflects factors such as its earnings growth profile, industry, profit margin, market cap and specific risks.

This Fair Ratio is more tailored than a simple comparison with peers or the broad industry because it adjusts for the company’s own characteristics rather than assuming one size fits all. On this measure, CVS Health’s actual P/E stands meaningfully higher than its Fair Ratio, which suggests that the shares may be expensive on an earnings multiple basis.

Result: OVERVALUED

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Upgrade Your Decision Making: Choose your CVS Health Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives. These are simple stories you create about a company that link your view of its future revenue, earnings and margins to a financial forecast and then to a fair value. All of this is packaged into an easy tool on Simply Wall St’s Community page that millions of investors already use to compare their Fair Value with the current price, see that view update automatically when fresh news or earnings arrive, and understand why one CVS Health Narrative might point to fair value near US$62 while another points closer to US$104 based on different assumptions about its healthcare model, cost pressures and long term opportunity.

For CVS Health, however, we’ll make it really easy for you with previews of two leading CVS Health Narratives:

Each one takes the same company facts and runs them through a different story about where earnings, margins and value could settle, which is why they land at very different fair values.

🐂 CVS Health Bull Case

Narrative fair value: US$104.01

Implied undervaluation vs last close of US$77.75: about 25.3%

Revenue growth assumption: 18.02%

• Sees CVS as a healthcare group in transition that is working through Medicare related charges, restructuring costs and leadership changes while still building out an integrated care model.
• Highlights strong Health Care Benefits revenue, a larger contribution from government contracts, higher medical membership and higher net investment income as key parts of the long term opportunity.
• Assumes the large restructuring program, cost control and integration of acquisitions can eventually support higher earnings and a valuation closer to the narrative fair value.

🐻 CVS Health Bear Case

Narrative fair value: US$62.09

Implied overvaluation vs last close of US$77.75: about 20.1%

Revenue growth assumption: 7%

• Accepts that CVS has a broad platform across pharmacy, insurance and provider services but questions how much of that will convert into higher returns for shareholders.
• Points to ongoing political debate around US healthcare reform and pressure on the retail store footprint, including the risk that more spending shifts online.
• Assumes CVS may grow profits more slowly than some managed care peers because of challenges in retail operations and the need to adapt its physical network.

Together, these Narratives frame the current share price between a more optimistic view that leans on the integrated care model and restructuring outcomes, and a more cautious view that focuses on policy risk and retail pressures. If you want to see the full detail behind each forecast and how other investors are pricing the trade offs, you can start with these two and then build your own version of the story for CVS Health.

Curious how numbers become stories that shape markets? Explore Community Narratives

Do you think there's more to the story for CVS Health? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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