Health services provider CVS Health Corporation (CVS - Get Rating) has witnessed insider buying activity over the past few months. In the last six months, insiders were net buyers of 169,511 (or 3.5%) shares of CVS.

The company has a significant record of returning value to shareholders. CVS has paid dividends for 14 consecutive years. Its dividend payouts have increased at 3.2% CAGR over the past three years. Its current dividend yield is 2.37%, and its four-year average yield is 2.79%.

Over the past month, CVS has lost 5.1% to close the last trading session at $93.56. However, it has gained 5% over the past year. Moreover, Wall Street analysts expect the stock to hit $122.00 in the near term, indicating a potential upside of 30.3%.

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

Solid Financials

CVS’ total revenues increased 11% year-over-year to $80.64 billion for the second quarter that ended June 30, 2022. Its net income came in at $2.95 billion, up 6% year-over-year, while its EPS came in at $2.23, up 6.2% year-over-year. Moreover, its operating income came in at $4.57 billion, up 5.6% year-over-year.

Attractive Valuations

CVS’ forward EV/Sales of 0.58x is 84.9% lower than the industry average of 3.82x, while its forward EV/EBITDA of 8.99x is 32.3% lower than the industry average of 13.26x. Also, its forward Price/Sales of 0.39x compares with the industry average of 4.47x, and its forward Price/Book of 1.53x is 40.1% lower than the industry average of 2.55x.

Robust Profitability

CVS’ trailing-12-month EBITDA margin of 6.14% is 88.7% higher than the industry average of 3.25%. Its trailing-12-month net income margin of 2.66% is higher than the negative industrial average of 2.86%.

In addition, its trailing-12-month ROCE, ROTC, and ROTA of 11.00%, 5.96%, and 3.55%, compared with the industry averages of negative 38.79%, 21.44%, and 29.59%, 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.

The stock has a B grade for Growth and Value, consistent with its solid financials in the latest reported quarter and lower-than-industry valuation multiples, respectively. It has a B grade for Stability, in sync with its beta of 0.71.

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

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

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

Bottom Line

The recent insider buying activity might be an indication of the company’s better prospects. Moreover, Street expects CVS’ revenue to increase 6.9% year-over-year to $312.36 billion in 2022. Its EPS is estimated to grow 6% per annum for the next five years. Also, given the stock’s attractive valuations and robust profitability, I think CVS could be an ideal investment now.

CVS shares were trading at $92.94 per share on Thursday afternoon, up $0.21 (+0.23%). Year-to-date, CVS has declined -7.87%, versus a -18.85% rise in the benchmark S&P 500 index during the same period.

About the Author: Riddhima Chakraborty

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. More...

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