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CVS Health Corp. (NYSE:CVS): Is there more Downside to the Stock?

An analysis by natey1015 on ValueInvestorsClub offers a bearish perspective for CVS Health, a stock that has fallen by almost 60% in the last three years. CVS shares were trading at $62.92 when the valuation was done by natey1015, vs. the closing price of $44.85 on Dec 31.

A row of shelves in a retail pharmacy, demonstrating the variety of drugs and over-the-counter products.

CVS offers health solutions in the United States. It operates under three segments namely Health Care Benefits, Health Services, and Pharmacy & Consumer Wellness. Health Care Benefits provides insurance products and related services to employer groups, individuals, students and workers. The Health Services segment caters to pharmacy benefit management solutions. The Pharmacy and Consumer Wellness segment sells prescription and over-the-counter drugs along with other consumer products.

Pharmacy and Consumer Wellness is the primary reason why the stock value has eroded over the past few years. The expected synergy from aggregating this segment to the health businesses is yet to materialize. The adjusted operating income of this counter has decreased from $7.26B in 2021 to an expected $5.70-5.75B in 2024. The front store revenue is expected to decay by 6.2% while the online segment continues to face pressure from leading players like Amazon.

The Health Care Benefits and Health Services businesses are expected to clock a growth rate of 3%-6%, with its implied value being driven by businesses from Aetna and PBM services. However, the growth rate in these segments is lower than its peers like Cigna, which offers a rate of 6%-9%. The implied valuation of this business is $67.4B, obtained by using an operating income multiple that is 20% lower than that commanded by Cigna.

The intrinsic value of CVS is between $120B and $135B, which is higher than the current Market Cap. However, it does not factor in the decaying value of the Pharmacy & Consumer Wellness segment that accounts for $38.5B-$54.4B. If zero value is assigned to this business, the implied value is close to the current market capitalization of CVS.

While we acknowledge the potential of CVS as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. 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.

READ NEXT: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to BlackRock.

Disclosure: None. This article was originally published at Insider Monkey.

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