CVS Health (CVS) Stock Could Be Undervalued Following Opioid Settlement

CVS Health shares have logged a solid multi year run, and with fresh headlines ranging from an opioid settlement to changes in its health benefits business, the key issue for investors is whether the current price is still in line with what the company earns.

• Over the past 3 years the stock has returned 52.7%, which puts real weight on the question of how well its earnings support that kind of performance.
• The US$315 million opioid settlement and related compliance commitments may affect both legal risk and future costs, which can influence how investors assess the durability of CVS Health's profit stream.
• Your read on CVS Health is one view; the desks covering it have another. See what analysts think CVS Health's shares could be worth.

The issue now is whether CVS Health's current share price is adequately backed by its earnings power today and the profitability investors expect it to sustain over time.

If you want to test the same earnings question you are asking of CVS Health across a wider set of companies, take a look at solid balance sheet and fundamentals stocks screener (25 results).

Is CVS Health Still Cheap on Earnings?

The P/E ratio works well for CVS Health because earnings are a central focus for how investors frame its mix of retail, insurance and pharmacy services. CVS currently trades on a P/E of 24.8x, which is close to the broader Healthcare sector average of 25.0x. Against a peer group sitting nearer 19.3x, the stock is priced at a higher multiple than many comparable insurers and pharmacy benefit players.

Despite the recent opioid settlement grabbing headlines, the current P/E still leaves CVS Health at a discount to the multiple a tailored model suggests for its growth profile, margins and risk mix. That gap points to a market that is cautious on near term earnings headlines, while placing a lower valuation on the business than its longer run cash flow characteristics might imply. Explore the numbers behind CVS Health's P/E valuation.

The CVS Health Narrative: What Would Justify Today's Price?

Narratives pick up where the P/E debate leaves off for CVS Health by spelling out which paths for growth, profitability and earnings would need to hold for the shares to look meaningfully underpriced or overvalued at today’s level, and they sit on Simply Wall St’s Community page. Rather than relying on a single P/E or model snapshot, each scenario lays out the assumptions behind its estimate so you can compare those expectations with actual results over time.

One of the top community narratives on CVS Health: 9% undervalued

"CVS Health is rebuilding itself while still operating at full scale, a difficult balancing act that has weighed on investor confidence…"

Discover why this Narrative puts CVS Health at 9% undervalued.

One more angle on CVS Health that could change the story

Price ratios only tell part of the story for CVS Health, because the people steering the business and how their rewards line up with your interests can tilt outcomes in important ways. See who runs CVS Health and how they are paid.

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