CVS Health

Methodology

CVS Health's integrated pharmacy and insurance model creates complex earnings that require careful normalization for medical loss ratios and PBM margin trends. The Aetna acquisition added insurance cyclicality to historically stable retail pharmacy earnings. Fair value calculations must account for regulatory pressures on drug pricing and reimbursement that compress margins across both segments.

Methodology

CVS trades at low PEG ratios (typically 0.5-1.0x) reflecting market concerns about structural headwinds in PBM economics and retail pharmacy profitability. The company's vertical integration thesis has yet to deliver promised synergies. PEG appears attractive but reflects legitimate skepticism about sustainable earnings growth amid regulatory and competitive pressures.

Methodology

CVS pays a meaningful dividend yielding 3-5% that provides downside support, making PEGY more attractive than PEG for this challenged healthcare stock. The dividend appears sustainable from current cash flows despite elevated debt from acquisitions. Total return relies heavily on yield given uncertain earnings growth trajectory in evolving healthcare markets.