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CVS Health (NYSE: CVS) is scheduled to report its Q1 2022 results on Wednesday, May 4. We expect CVS stock to trade sideways post the results announcement, with Q1 revenue and earnings likely being in-line with the consensus estimates. The overall economic growth likely bolstered the revenue growth in Q1. CVS should benefit from testing demand due to the spread of Omicron in Q1. That said, the company expects a 70% to 80% y-o-y cut in Covid-19 vaccine volume and a 40% to 50% decline in at-store diagnostic testing volume for the full-year 2022. While we expect CVS to report an in-line Q1, we find that CVS stock is currently undervalued, as discussed below. Our interactive dashboard analysis on CVS Health’s Earnings Preview has additional details.
(1) Revenues expected to align with the consensus estimates
- Trefis estimates CVS’ Q1 2022 revenues to be around $75.5 billion, compared to the $75.4 billion consensus estimate.
- While CVS’ Covid-19 vaccine and testing drove its revenue growth in 2021, their contribution is expected to be much lower this year.
- Q1 2022 marked the spread of Omicron and a rise in Covid-19 cases in the U.S., implying that CVS’ revenue from testing likely remained high.
- With economic growth and opening up of economies, CVS is likely to see an increase in footfall at its stores, aiding its retail sales growth.
- Looking back at Q4 2021, CVS reported a 10% y-o-y rise in sales to $76.6 billion led by higher retail and pharmacy services revenue.
- Our dashboard on CVS Health’s Revenues offers more details on the company’s top line and its comparison to peers.
(2) EPS likely to be marginally above the consensus estimates
- CVS’ Q1 2022 adjusted earnings per share is expected to be $2.20 per Trefis analysis, slightly ahead of the $2.15 consensus estimate.
- CVS’ adjusted net income of $2.6 billion in Q4 2021 reflected a 54% y-o-y rise, primarily due to higher revenues and operating margin expansion.
- On an adjusted basis, CVS operating margins expanded over 100 bps to 5.4% in Q4. Our dashboard on CVS Health’s Operating Income has more details.
- For the full-year 2022, we expect the adjusted EPS to be $8.40 aligning with the level seen in 2021.
(3) CVS stock is undervalued
- We estimate CVS Health’s Valuation to be $116, which is 21% above the current market price of $96.
- This represents a P/EBITDA multiple of 7.5x based on our CVS Health EBITDA forecast.
- That said, if the company reports upbeat Q1 results and 2022 guidance better than the street estimates, the P/EBITDA multiple will likely be revised upward, resulting in higher levels for CVS stock.
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While CVS stock looks like it is undervalued, it is helpful to see how CVS Health’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.
Furthermore, the Covid-19 crisis has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised how counter-intuitive the stock valuation is for Walmart vs. VMware VMW .
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