How are CVS Health’s margins trending?

CVS Health (NYSE: CVS) net income is expected to reach $8.3 billion in 2023, up $4.2 billion or 101% year over year, primarily due to opioid litigation charges included in financial results for 2022. This report will cover CVS’s margin profile and stock price movement over the past three years.

First, let’s look at CVS’s stock price performance. CVS’s stock price has faced a significant decline of 20% from $70 in early January 2021 to around $55 currently, while the S&P 500 has risen by around 40% over the past three years. However, CVS’s stock price decline has been inconsistent. The stock’s returns were 51% in 2021, -10% in 2022, and -15% in 2023. In comparison, the S&P 500’s returns were 27% in 2021, -19% in 2022, and 24% in 2023. CVS underperformed the S&P. 2023.

in fact, Consistently outperforming the S&P 500 Individual stocks have been tough to manage in recent years, in good times and bad, even for healthcare giants like LLY, UNH, and JNJ, as well as mega-cap stars like GOOG, TSLA, and MSFT. In contrast, Trefis’ high-quality portfolio of 30 stocks: Outperforming the S&P 500 every year During the same period. why is that? As a group, the stocks in the HQ portfolio have delivered higher returns with lower risk and less rollercoaster-like fluctuations compared to the benchmark index, which is evident from the performance metrics of the HQ portfolio.

Given the current uncertain macroeconomic environment of high oil prices and rising interest rates, could CVS face a similar situation in 2023? Underperforming the S&P Will the economy recover in the next 12 months? CVS Health Rating We expect earnings of $72 per share, which would reflect an upside of about 30% from the current share price of about $56. Our forecast is based on CVS’s P/E ratio of 9 and projected adjusted earnings per share of $7.70 for full-year 2024. A P/E ratio of 9 is slightly lower than the stock’s average of 10 over the past five years.

CVS’s gross profit and operating margins have declined in recent years.

CVS’s gross profits have grown from $49 billion in 2020 to $54 billion in 2023. Gross margins have shrunk from 18.3% to 15.2% during this period. Similarly, CVS’s operating margins have shrunk from 5.2% in 2020 to 4.1% in 2023, and further to 3.6% over the past 12 months. The company’s employee benefit expenses have increased 55% between 2020 and 2023, outpacing the 33% growth in total revenue during this period. Note that CVS will incur $5.8 billion in opioid litigation expenses in 2022, which will weigh on its 2022 net profit numbers.

Net profit margins are rising

Despite the contraction in gross and operating profits, the company’s net income grew from $7.2 billion in 2020 to $8.3 billion in 2023. However, net margins declined from 2.7% to 2.3% during the period. This can be attributed primarily to the company’s higher employee benefit expenses and higher effective tax rate. On an adjusted basis, net margins have contracted from 3.7% in 2020 to 3.2% in 2023. Still, adjusted earnings per share increased from $7.50 to $8.74 during the same period, due to a 2% decrease in total shares outstanding amid a $5.5 billion share repurchase.

Additionally, the company’s outlook for 2024 is not encouraging: The company expects adjusted earnings to be in the range of $7.00 to $8.30 per share, compared with $8.74 per share in 2023. This is primarily due to expected increases in healthcare costs.

Given the current increase in procedure volumes, CVS could face rising healthcare costs in the near future, negatively impacting overall profit margins. Despite the near-term headwinds, we believe CVS stock has plenty of room to grow, and investors looking to get in would be better off picking CVS after the recent share price decline.

CVS stock price appears to be headed for a rise. CVS Health’s competitors Performance based on key indicators. Other valuable comparisons between companies across industries include: Peer Comparison.

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