CVS's Sell-Off May Be Overblown
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CVS Health's recent stock sell-off may be exaggerated. The stock is trading at a forward P/E of 8-9x, significantly below its historical average of 16x. Concerns over potential reforms affecting its PBM segment, which contributes 46% of its income, have led to market overreaction. Even with a 25% cut in PBM profitability, the EPS would be around $4, suggesting a fair value of $60 with a P/E of 15x.
December 15, 2024 | 2:45 pm
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CVS Health's stock is currently undervalued due to market overreaction to potential PBM segment reforms. The stock is trading at a forward P/E of 8-9x, well below its historical average of 16x. Even with a 25% cut in PBM profitability, the EPS would be around $4, suggesting a fair value of $60 with a P/E of 15x.
The article suggests that the market has overreacted to potential reforms affecting CVS's PBM segment, which contributes significantly to its income. The current P/E ratio is much lower than its historical average, indicating undervaluation. Even with a significant cut in PBM profitability, the stock's fair value is estimated to be higher than the current price.
CONFIDENCE 95
IMPORTANCE 90
RELEVANCE 100