CVS Health Corp (CVS)

Conclusion

CVS Health Corporation operates a health insurance business (Health Care Benefits), a pharmacy benefit management business (Health Services) and a retail pharmacy and consumer wellness business. At 88.51 USD on 2026-11-02, the shares carry a market capitalisation of 113.2 billion USD and an enterprise value of 175.5 billion USD.

The verdict is undervalued. The price-to-earnings ratio of 23.07 stands above its ten-year median of 15.69, a premium of 47.1%, and the EV/EBITDA of 13.09 stands above its median of 11.33, a premium of 15.6%. The discounted cash flow gives 197.21 USD per share at a discount rate of 8.91%. The fair value band runs from 112.86 to 169.29 USD with a midpoint of 141.08 USD, a margin of safety of 59.4%, and the fair value from historical multiples is 84.95 USD. The reverse DCF implies growth of -3.8% a year, against revenue growth of 8.39% over five years and free cash flow per share growth of -9.68% over five years.

What holds the case up is free cash flow conversion of 2.40x over the last twelve months, a Beneish M-score of -2.41, and seven earnings beats in the last eight quarters. What would break it is net debt to EBITDA of 4.65, interest coverage of 2.87, and an operating margin of 2.0% against a ten-year median of 4.2%. Earnings per share have fallen at a compound 23.9% a year over five years.

Financial health

Financial strength is red, pulled down by net debt to EBITDA of 4.65 and interest coverage of 2.87, both assessed as bad. The current ratio of 0.87 and the quick ratio of 0.62 leave a thin liquidity cushion, and debt to equity stands at 0.96 as of 2026-06-30. The Altman Z-score is 2.45, in the grey zone, although the Altman model was designed for manufacturers and CVS is not one. Insolvency risk: low, about 0.9% by the estimate of the Ohlson model over one to two years, based on 2025-12-31 figures.

Earnings quality

Earnings quality is green, supported by free cash flow conversion, a low Beneish score and a falling share count. Free cash flow conversion is 2.40x over the last twelve months and 1.99x over five years, and the accrual ratio of -3.45% means cash earnings exceed reported earnings. Stock-based compensation is 0.11% of revenue, leaving free cash flow after it at 11.3 billion USD. The share count has fallen at a compound 0.66% a year over five years, which points to buybacks. The Piotroski score is 6 out of 9, and the Beneish M-score of -2.41 reads as unlikely to indicate manipulation. CVS beat estimates in seven of the last eight quarters, with an average surprise of 17.95%. Over the last 90 days, the current-year estimate moved up 7.9% and the next-year estimate moved up 1.4%.

Profitability

Profitability is red, driven by an operating margin of 2.0%, which is assessed as bad against a ten-year median of 4.2%. The gross margin of 14.15% compares with a median of 16.22%, and the net margin of 1.18% compares with a median of 2.46%. Return on invested capital is 5.06% against a WACC of 6.92%, with a given gap of -1.86%, assessed as neutral. The five-year median ROIC is 5.2%. Return on equity of 6.16% is flattered by leverage: the 2025 DuPont split shows a net margin of 0.44%, asset turnover of 1.54 and an equity multiplier of 3.47. The operating margin stability value is 0.3451.

Growth

Growth is yellow. Revenue has compounded at 7.63% over three years, 8.39% over five years and 10.12% over ten years, and it grew in all 10 comparable years. Earnings per share have fallen at compound rates of 24.7% over three years, 23.9% over five years and 11.4% over ten years. Free cash flow per share fell at 15.5% a year over three years and 9.7% over five years, while it rose at 1.2% a year over ten years. The next-year earnings estimate implies growth of 6.1%.

Valuation

Valuation is green, with a verdict of undervalued and a margin of safety of 59.4%. Current multiples against their ten-year medians are a price-to-earnings ratio of 23.07 against 15.69 (premium 47.1%), EV/EBITDA of 13.09 against 11.33 (premium 15.6%), and price-to-sales of 0.27 against 0.35 (discount 23.2%). The discounted cash flow gives 197.21 USD per share at a discount rate of 8.91%, and 57.9% of that value sits in the terminal value. The fair value band of 112.86 to 169.29 USD is an order of magnitude built on fixed assumptions, including a 5% equity risk premium and capped growth, not a price target. The reverse DCF implies growth of -3.8%, against revenue growth of 8.39% and free cash flow per share growth of -9.68% over five years. The dividend yield is 3.02%, the forward yield 2.95%, and the payout on free cash flow 29.05%.

Risks

Net debt to EBITDA of 4.65 and interest coverage of 2.87 mean a large share of operating cash goes to servicing debt, so any fall in earnings would press harder on the balance sheet. A current ratio of 0.87 leaves little room for short-term obligations. An operating margin of 2.0% leaves little buffer, and a further squeeze would weigh directly on the cash flow that supports the valuation. The five-year decline in earnings per share shows that the historical growth record is weak. The Altman model does not fit this business, so its zone is only indicative. This analysis does not include a debt maturity schedule or revenue by segment, which limits any view on refinancing or on which activities drive the results. The fair value figures rest on fixed assumptions and are not a price target.