CVS Health (CVS): A Fresh Look at Valuation as Investor Sentiment Shifts

Is CVS Health Stock Finally a Value Buy Again?

CVS Health (CVS) is back on investors’ radars, and not because of a headline-grabbing event. Sometimes a stock makes a noticeable move even when the news flow is quiet. That pause for breath can catch your attention as much as a dramatic announcement. Experienced investors know these moments might signal an inflection point in sentiment, even if the trigger is simply a period of underappreciated momentum.

Looking at the stock’s recent journey, it stands out. CVS Health’s share price has gained about 38% over the last year and is up nearly 14% in the past month, hinting at shifting investor attitudes after a stretch of relative weakness in prior years. While the past three years saw negative returns, the last five years overall show respectable growth. Revenue and net income have also grown year over year, giving fundamentals a supporting role in the company’s turnaround narrative.

With shares rallying without a firm news catalyst, the question is whether CVS Health is offering true value right now or if the market has already begun pricing in future growth potential.

Most Popular Narrative: 28.2% Undervalued

According to the most popular narrative, CVS Health appears to be meaningfully undervalued compared to its calculated fair value. This suggests a significant margin of safety for long-term investors.

“The DCF valuation of CVS Health calculates a fair value of around $103, indicating a 45% undervaluation compared to its current market price of $56.49. This valuation uses several key inputs: a discount rate of 9%, chosen to balance CVS's growth potential and industry risk, and an EPS growth rate of 4.7% over ten years, which accounts for expected stable, long-term growth.”

What is driving this aggressive upside call? The narrative relies on big-picture revenue and profit growth assumptions incorporated into its multi-stage valuation model. For those interested in understanding the reasoning behind these high-conviction estimates and the trends that could provide CVS with a chance at a price re-rating, the full narrative highlights the surprise elements at the center of its forecast.

Result: Fair Value of $103 (UNDERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, rising medical costs and ongoing integration challenges from recent acquisitions could offset expected gains. These factors may challenge the undervaluation thesis for CVS Health.

Find out about the key risks to this CVS Health narrative.

Another View: Testing the Valuation

While the earlier discussion pointed to significant upside based on discounted cash flow analysis, a look at valuation using earnings relative to the U.S. healthcare industry provides a more tempered reading. Does this challenge the notion CVS is truly overlooked, or does it highlight a deeper bargain?

See what the numbers say about this price — find out in our valuation breakdown.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out CVS Health for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own CVS Health Narrative

If you prefer hands-on research or think there is another angle worth exploring, you can dive in and build your own CVS Health story from scratch in just a few minutes, Do it your way.

A great starting point for your CVS Health research is our analysis highlighting 3 key rewards and 3 important warning signs that could impact your investment decision.

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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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