DCF Studio

    CVS · NYQ · Healthcare

    CVS Health Corporation

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    USD 137.84

    Market price

    USD 88.84

    Implied upside

    +55.2%

    5-year forecast · Perpetuity growth terminal value · Mid-year discounting · Base case

    AdjustedReported capital expenditure averages just 0.79% of revenue, which is too low to be the company's real investment - property trusts and similar structures invest through lines that are not reported as capex. Capex has been set to 1.23% of revenue so the forecast is not handed free growth. The accounts do not separate depreciation from amortisation, so the combined charge is used - if a large part of it is amortisation of an acquisition, the reported capex is probably right and this substitution is not. Override it if the reported figure is right.

    Value Per Share

    Perpetuity growth
    USD 137.84+55.2%
    Exit multiple
    USD 191.34+115.4%
    Market price
    USD 88.84

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0bn8bn16bnFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayUSD
    LineFY26FY27FY28FY29FY30CAGR
    RevenueUSD 432.7bnUSD 465.8bnUSD 501.3bnUSD 539.6bnUSD 580.7bn+7.6%
    EBITUSD 15.5bnUSD 16.7bnUSD 17.9bnUSD 19.3bnUSD 20.8bn+7.6%
    NOPATUSD 12.2bnUSD 13.2bnUSD 14.2bnUSD 15.3bnUSD 16.4bn+7.6%
    Add depreciation & amortisationUSD 5.3bnUSD 5.7bnUSD 6.2bnUSD 6.6bnUSD 7.1bn+7.6%
    Less capital expenditureUSD -5.3bnUSD -5.7bnUSD -6.2bnUSD -6.6bnUSD -7.1bn+7.6%
    Less increase in working capitalUSD 13.0mUSD 14.0mUSD 15.1mUSD 16.3mUSD 17.5m-7.6%
    Free cashflow to firmUSD 12.2bnUSD 13.2bnUSD 14.2bnUSD 15.3bnUSD 16.4bn+7.6%
    Discount factor0.96730.90500.84670.79210.7411-
    Present valueUSD 11.8bnUSD 11.9bnUSD 12.0bnUSD 12.1bnUSD 12.2bn+0.7%
    Present Value Of The ForecastUSD 60.1bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.00%US 10-year Treasury (^TNX)
    Equity risk premium5.50%Market assumption
    Beta0.719Reported 0.580, pulled toward 1.0 (Blume)
    Cost of equity8.95%Risk-free + beta x equity risk premium
    Cost of debt5.00%Floored at the risk-free rate (implied cost of debt was lower)
    Market capitalisationUSD 113.6bn58.7% of capital
    Total debtUSD 80.0bn41.3% of capital, book value as a proxy
    Tax rate21.0%Effective, capped at statutory
    WACC6.88%E/V x Re + D/V x Rd x (1 - t)

    Terminal Value

    Perpetuity growth is intrinsic. The exit multiple defaults to the company's current EV/EBITDA, so it answers a different question - what the shares are worth if today's rating holds and EBITDA grows as forecast.

    Perpetuity growth at 2.50%

    Value per shareUSD 137.84

    75% of EV

    Forecast FCFF, final year
    USD 16.4bn
    Capex at depreciation, working capital in reinvestment
    USD 16.4bn
    Less reinvestment at g/ROIC (35.2% of NOPAT)
    USD -5.8bn
    Capitalised
    USD 10.6bn
    ROIC (reported)
    7.1%
    Terminal value, undiscounted
    USD 248.9bn
    Terminal value, discounted
    USD 184.5bn
    Enterprise value
    USD 244.5bn
    Less net debt
    USD 69.4bn
    Equity value
    USD 175.2bn

    Exit at 12.2x EBITDA

    Value per shareUSD 191.34

    81% of EV

    Terminal value, undiscounted
    USD 340.7bn
    Terminal value, discounted
    USD 252.5bn
    Enterprise value
    USD 312.6bn
    Less net debt
    USD 69.4bn
    Equity value
    USD 243.2bn

    Spread between methods: 33%.

    Sensitivity

    Value per share (USD) by discount rate and long-run growth.

    Long-run growth
    Discount rate1.50%2.00%2.50%3.00%3.50%
    4.88%241.68259.95285.57324.40390.75
    5.88%176.28182.34189.98200.03213.99
    6.88%135.11136.40137.84139.47141.38
    7.88%109.80110.39110.97111.55112.13
    8.88%91.1991.6892.1892.6793.17

    Outlined: this model. Green text: above today's price of 88.84. Shading: distance from this model's own value.

    Priced In

    What each input would have to be to justify the current price, one at a time.

    InputModelImpliedGap
    Revenue growth, every year7.6%0.8%-6.8pp
    EBIT margin3.6%2.7%-0.9pp
    Discount rate6.9%9.1%+2.2pp
    Download as Excel

    Live formulas, not pasted numbers - edit a driver and the workbook reprices.

    Yahoo Finance and RBA data. General information, not advice. Methodology.