Health services provider CVS Health Corporation (CVS - Get Rating) recently acquired healthcare platform provider Signify Health, Inc. (SGFY) for approximately $8 billion. This acquisition is expected to enable CVS to increase its customer base by reaching out to customers at their homes.

Last month, CVS’ CEO Karen Lynch chalked out the company’s plans to be present at every aspect of a patient’s health journey. After the SGFY acquisition, Lynch expects the company to expand into primary care.

The company’s annual dividend of $2.20 yields 2.20% on the current share price. The company’s dividend payouts grew at a 3.2% CAGR over the past three years and a 1.9% CAGR over the past five years.

The stock has gained 7.5% over the past year and 13.2% over the past month to close its last trading session at $99.91. It is trading higher than its 50-day moving average of $96.75 and 200-day moving average of $99.36, indicating an uptrend.

Here are the factors that could influence CVS’ performance in the near term:

Solid Recent Financials and Raised Guidance

For the fiscal third quarter ended September 30, CVS’ total revenues increased 10% year-over-year to $81.16 billion. Adjusted operating income rose 3.9% from the prior-year quarter to $4.23 billion. Adjusted EPS improved 6.1% from the prior-year period to $2.09.

For the fiscal year 2022, the company raised its adjusted EPS guidance range to $8.55- $8.65 from $8.40-$8.60. CVS also increased its cash flow from the operations guidance range to $13.5-$14.5 billion from $12.5-$13.5 billion.

Cheap Valuation

In terms of its forward non-GAAP P/E, CVS is trading at 11.56x, 36.1% lower than the industry average of 18.08x. The stock’s forward EV/Sales multiple of 0.59 is 84.1% lower than the industry average of 3.71. In terms of its forward Price/Sales, it is trading at 0.42x, 89.9% lower than the industry average of 4.13x.

Bullish Wall Street Sentiment

In the last three months, of the16 Wall Street analysts raging CVS, 14 have rated the stock a ‘Buy,’ while only two of them have given a ‘Hold’ rating. The 12-month median price target of $118.47 indicates an 18.6% potential upside. The price targets range from a low of $106 to a high of $130.

POWR Ratings Reflect Promising Prospects

CVS’ strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which equates to a Strong Buy in our proprietary rating 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 a Growth grade of A, in sync with its solid financial growth in the last quarter.

The stock has a B grade for Sentiment, consistent with the favorable analyst sentiment. It also has a grade of B for Stability, in sync with its five-year beta of 0.68.

In the four-stock Medical – Drug Stores industry, it is ranked #1. The industry is rated B.

Click here to see the additional POWR Ratings for CVS (Value, Momentum, and Quality).

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

Bottom Line

CVS’ steady dividend payment reflects the company’s steady income stream. Moreover, the company’s recent acquisition looks to be a promising addition to its operative capability. With Street analysts bullish on the stock, it might be a solid buy now.

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 - Get Rating), which has an overall B (Buy) rating.

CVS shares were unchanged in premarket trading Friday. Year-to-date, CVS has declined -0.96%, versus a -15.94% rise in the benchmark S&P 500 index during the same period.

About the Author: Anushka Dutta

Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research. More...

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