While waiting the span of several weeks after the first of the year, I recently made another purchase within a span of week from the first purchase in 2019. This most recent purchase is a new position for the portfolio, CVS Health.
Company Profile: CVS Health Corporation provides health services and plans in the United States. Its Pharmacy Services segment offers pharmacy benefit management solutions, such as plan design and administration, formulary management, retail pharmacy network management, mail order pharmacy, specialty pharmacy and infusion, Medicare Part D, clinical, disease management, and medical spend management services. The company's Retail/LTC segment sells prescription drugs and general merchandise, such as over-the-counter drugs, beauty products, cosmetics, and personal care products, as well as provides health care services through its MinuteClinic walk-in medical clinics. Its Health Care Benefits segment offers traditional, voluntary, and consumer-directed health insurance products and related services, including medical, pharmacy, dental, behavioral health, medical management, Medicare plans, PDPs, Medicaid health care management services, workers' compensation administrative services, and health information technology products and services. The company's customers include employers, insurance companies, unions, government employee groups, health plans, Medicare Part D prescription drug plans, Medicaid managed care plans, plans offered on public health insurance exchanges and private health insurance exchanges, other sponsors of health benefit plans, individuals, college students, workers, labor groups, and expatriates. As of December 31, 2018, it had approximately 40 leased on-site pharmacies, 25 leased retail specialty pharmacy stores, 20 specialty mail order pharmacies, and 90 branches for infusion and enteral services; and 9,900 retail locations and 1,100 MinuteClinic locations, as well as operated an online retail pharmacy Websites, LTC pharmacies, and onsite pharmacies. The company was formerly known as CVS Caremark Corporation and changed its name to CVS Health Corporation in September 2014. CVS Health Corporation was founded in 1963 and is headquartered in Woonsocket, Rhode Island.
Purchased: 46 shares x $55.245 = $2,541.27 (+$4.95 commission)
Forward P/E ratio: 8.10 vs. S&P Forward P/E @ 16.98
Debt to Capital < 50%: No, 52.7%
Interest Coverage ratio of at least 3:1: No, 1.54x
S&P and/or Moody's credit rating of BBB+/Baa1 or better: No, BBB/Baa2
It is worth noting here that the debt load that CVSHealth's balance sheet carries is not lost on management (nor many of its shareholders and analysts). As noted below, the dividend remains frozen at its current rate per share and no share repurchases are occurring as management is focusing on allocating free cash flow to deleveraging the balance sheet.
Current dividend yield > 1.5x S&P yield: Yes. 3.62% vs. S&P's 1.96%
Payout Ratio < 60% (or < 85% for utilities): Yes*, most recent annual reporting period for 2018 resulted in a GAAP loss per share of ($0.57) per share with management reporting and adj. EPS of $7.08*. Both operating and free cash flow remain strong at $8.9B and $6.8B, respectively. FCF per share of $4.22* more than adequately covers the current dividend.
Dividend King or CCC classification: N/A, CVS ended its most recent dividend streak of 14 years when it decided to freeze the dividend at $0.50/sh connection with its acquisition of Aetna.
Comments: This is a company has garnered a lot of attention in recent years for better or worse. When I first learned of the plans for CVS to acquire and integrate Aetna within its operations, admittedly I was a bit skeptical and certainly wasn't willing to build a position at prevailing market valuation when the deal was announced. However, with the decline in the market value since then which was further exacerbated by the recently announced financial results for 2018 that disappointed the street, I am now of the opinion that the risk vs. reward profile for this enterprise weighs heavily on the reward side with a very large margin of safety (similar to my opinion of BAYRY). Many would agree that the biggest risk for CVS in the near term is the execution risk of merging Aetna with the legacy businesses with the risk of potentially unfavorable U.S. healthcare regulation changes in the next 3-8 years a close second. If management scores a victory and executes their plan well, there is substantial upside from current valuation.
The following comes from the CVSHealth Investor Fact Sheet:
Company Profile: CVS Health Corporation provides health services and plans in the United States. Its Pharmacy Services segment offers pharmacy benefit management solutions, such as plan design and administration, formulary management, retail pharmacy network management, mail order pharmacy, specialty pharmacy and infusion, Medicare Part D, clinical, disease management, and medical spend management services. The company's Retail/LTC segment sells prescription drugs and general merchandise, such as over-the-counter drugs, beauty products, cosmetics, and personal care products, as well as provides health care services through its MinuteClinic walk-in medical clinics. Its Health Care Benefits segment offers traditional, voluntary, and consumer-directed health insurance products and related services, including medical, pharmacy, dental, behavioral health, medical management, Medicare plans, PDPs, Medicaid health care management services, workers' compensation administrative services, and health information technology products and services. The company's customers include employers, insurance companies, unions, government employee groups, health plans, Medicare Part D prescription drug plans, Medicaid managed care plans, plans offered on public health insurance exchanges and private health insurance exchanges, other sponsors of health benefit plans, individuals, college students, workers, labor groups, and expatriates. As of December 31, 2018, it had approximately 40 leased on-site pharmacies, 25 leased retail specialty pharmacy stores, 20 specialty mail order pharmacies, and 90 branches for infusion and enteral services; and 9,900 retail locations and 1,100 MinuteClinic locations, as well as operated an online retail pharmacy Websites, LTC pharmacies, and onsite pharmacies. The company was formerly known as CVS Caremark Corporation and changed its name to CVS Health Corporation in September 2014. CVS Health Corporation was founded in 1963 and is headquartered in Woonsocket, Rhode Island.
Purchased: 46 shares x $55.245 = $2,541.27 (+$4.95 commission)
Dividend Income: This purchase adds $92.00 of income annually ($2.00 annual dividend; paid quarterly in Feb, May, Aug, and Nov)
Forward P/E ratio: 8.10 vs. S&P Forward P/E @ 16.98
Debt to Capital < 50%: No, 52.7%
Interest Coverage ratio of at least 3:1: No, 1.54x
S&P and/or Moody's credit rating of BBB+/Baa1 or better: No, BBB/Baa2
It is worth noting here that the debt load that CVSHealth's balance sheet carries is not lost on management (nor many of its shareholders and analysts). As noted below, the dividend remains frozen at its current rate per share and no share repurchases are occurring as management is focusing on allocating free cash flow to deleveraging the balance sheet.
Current dividend yield > 1.5x S&P yield: Yes. 3.62% vs. S&P's 1.96%
Payout Ratio < 60% (or < 85% for utilities): Yes*, most recent annual reporting period for 2018 resulted in a GAAP loss per share of ($0.57) per share with management reporting and adj. EPS of $7.08*. Both operating and free cash flow remain strong at $8.9B and $6.8B, respectively. FCF per share of $4.22* more than adequately covers the current dividend.
Dividend King or CCC classification: N/A, CVS ended its most recent dividend streak of 14 years when it decided to freeze the dividend at $0.50/sh connection with its acquisition of Aetna.
Comments: This is a company has garnered a lot of attention in recent years for better or worse. When I first learned of the plans for CVS to acquire and integrate Aetna within its operations, admittedly I was a bit skeptical and certainly wasn't willing to build a position at prevailing market valuation when the deal was announced. However, with the decline in the market value since then which was further exacerbated by the recently announced financial results for 2018 that disappointed the street, I am now of the opinion that the risk vs. reward profile for this enterprise weighs heavily on the reward side with a very large margin of safety (similar to my opinion of BAYRY). Many would agree that the biggest risk for CVS in the near term is the execution risk of merging Aetna with the legacy businesses with the risk of potentially unfavorable U.S. healthcare regulation changes in the next 3-8 years a close second. If management scores a victory and executes their plan well, there is substantial upside from current valuation.
The following comes from the CVSHealth Investor Fact Sheet:
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