CVS Health Corporation (CVS) recently raised its adjusted EPS guidance range to $8.55 to $8.65 from $8.40 to $8.60. Moreover, it surpassed revenue estimates by 5.7% and EPS estimates by 7.9% for the 2022 third quarter.

“We continue to execute on our strategy with a focus on expanding capabilities in health care delivery, and the announced acquisition of Signify Health will further strengthen our engagement with consumers,” Karen S. Lynch, CVS’ CEO, said.

Moreover, CVS has an excellent dividend-paying record. It has paid dividends for 14 consecutive years. Its dividend payouts have increased at a 3.2% CAGR over the past three years. Its current dividend yield is 2.15%, while its four-year average yield is 2.78%.

On the other hand, the stock market has been highly volatile this year, as evident from the CBOE Volatility Index’s 32.1% year-to-date gains.

The market could plunge further before rebounding. J.P. Morgan recently said, “We expect market volatility to remain elevated with another round of declines in equities, especially after the run-up into year-end.”

Despite the market turbulence, CVS has gained marginally over the past month and 10.1% over the past year to close the last trading session at $102.90. Also, it has gained 6.6% over the past six months.

Here is what could shape CVS’ performance in the near term:

Solid Financials

For its third quarter that ended September 30, 2022, CVS’ total revenues came in at $81.16 billion, up 10% year-over-year. Its adjusted operating income came in at $4.23 billion, up 3.9% year-over-year. Moreover, its adjusted EPS came in at $2.09, up 6.1% year-over-year.

Also, its cash and cash equivalents came in at $17.20 billion for the period ended September 30, 2022, compared to $9.41 billion for the period ended December 31, 2021.

Favorable Analyst Expectations

Analysts expect CVS’ revenue to increase 7.7% year-over-year to $314.70 billion in 2022 and 3.5% year-over-year to $325.82 billion in 2023. Its EPS is expected to increase 2.6% year-over-year to $8.62 in 2022 and 2.8% year-over-year to $8.86 in 2023. It surpassed EPS estimates in all four trailing quarters.

Wall Street analysts expect the stock to hit $117.31 in the near term, indicating a potential upside of 14.7%. Of the 13 analysts who rated CVS, 12 rated it Buy, and one rated it Hold.

Robust Profitability

CVS’ trailing-12-month EBITDA margin of 6.08% is 55.4% higher than the industry average of 3.91%. Its trailing-12-month net income margin of 1.00% is higher than the negative industry average of 5.94%.

In addition, its trailing-12-month ROCE, ROTC, and ROTA of 4.35%, 6.26%, and 1.36% are compared with the negative industry averages of 39.56%, 21.95%, and 31.20%, respectively.

POWR Ratings Reflect Promising Outlook

CVS has an overall rating of A, which equates to a Strong Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. CVS has an A grade for Growth, consistent with its solid financials in the latest reported quarter. It has a B grade for Stability, consistent with its beta of 0.68.

In the 4-stock Medical – Drug Stores industry, CVS is ranked first. The industry is rated B.

Click here for the additional POWR Ratings for CVS (Value, Momentum, Sentiment, Quality).

View all the top stocks in the Medical – Drug Stores industry here.

Bottom Line

CVS’ fundamental positioning is solid. Moreover, its EPS is expected to rise 5.5% per annum for the next five years. Given the stock’s favorable outlook and robust profitability, I think CVS might be an ideal buy amid market volatility.

How Does CVS Health Corporation (CVS) Stack up Against Its Peers?

While CVS has an overall POWR Rating of A, one might consider looking at its industry peer, Clicks Group Limited (CLCGY), which has an overall B (Buy) rating.

CVS shares were trading at $103.39 per share on Thursday afternoon, up $1.11 (+1.09%). Year-to-date, CVS has gained 2.49%, versus a -15.50% rise in the benchmark S&P 500 index during the same period.

Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries.

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