August 5, 2019 BARRON’S 13
A CHEAP STOCK THAT’S A BARGAIN
CVSTriesto
Heal Itself
CVS Health finally has a chance to prove it’s on the road
to recovery. The stock is worth half of what it was at its
2015 peak, and is down 15% in 2019. But first-quarter
earnings helped arrest the decline—the stock jumped 5%
after beating low-bar expectations—and with earnings due
out again Wednesday, CVS has a chance to do it again.
Many forces are working against CVS. It’s the U.S.’
leading prescription filler and one of its largest phar-
macy benefit managers, or PBMs, which negotiate dis-
counts with drugmakers on behalf of group buyers.
Growth at both units has been sluggish, and political
pressure is targeting drug prices. CVS acquired insurer
Aetna inNovember, but with anelection looming, some
candidates talk of eliminating managed-care companies
altogether.
No wonder the stock is trading at just eight times
forward earnings, below the average of 14 times over
the past five years. Still, CVS is positioned to survive
changes to the U.S. health-care system, as Barron’s
noted in mid-April. It’s the only big player in all three
main segments—pharmacy retail, benefits management,
and health insurance. Lower drug prices can boost its
insurance business, while its pharmacies could gain if
patients get used to filling prescriptions online.
That makes the stock cheap, and a bargain, especially
compared with rivals like UnitedHealth Group , Cigna ,
Anthem , and Humana. It yields 3.6%. Wall Street isn’t
expecting much—$1.69 a share in earnings, virtually un-
changed from a year ago. If its numbers top that, it could
mean that CVS has finally turned the corner.— EVIE LIU
Deep Discount
CVSstockhaslostalmosthalf
its value since 2015.
Change Agent
With pharmacy, PBM and insurance
businesses,CVSiswellpositioned
for healthcare disruption.
2015
$0 billion $20 $
’17 ’
0
25
50%
CVS Health..............................
UnitedHealth
Cigna....................................
Humana..................................
Anthem..................................
Rite Aid
Walgreens
Boots Alliance
S&P
Quarterly Revenue
CVSHealth
Source: FactSet
Services
(incl.PBM)
Insurance Pharmacy
Source: Corporate earnings reports for quarter
ended March 31, 2019. Rite Aid quarter ended
March 2 and Walgreens’ ended February 28.
Monday 8/
KLA, Linde, Loews, Marriott In-
ternational, Take-Two Interactive
Software, and Tyson Foods report
quarterly results.
The Institute for Supply Manage-
ment releases its Non-manufacturing
Index for July. Economists forecast a
55.5 reading, up from June’s 55.1.
Tuesday 8/
Becton Dickinson, Discovery, Em-
erson Electric, Fidelity National
Information Services, FleetCor
Technologies, Microchip Technol-
ogy, Regeneron Pharmaceuticals,
Walt Disney, and Zoetis release
earnings.
The Reserve Bank of Australia an-
nounces its monetary-policy decision.
The market expects the central bank to
keep its key short-term interest rate
unchanged at 1%.
The Bureau of Labor Statistics re-
leases the Job Openings and Labor
Turnover Survey for June. Consensus
estimates are for 7.3 million job open-
ings on the last business day of June,
roughly even with May’s data.
O’Reilly Automotive hosts an
analyst day in Aurora, Colo. The
firm’s CEO,Greg Johnson, is among
the expected speakers.
Qorvo holds its annual meeting of
stockholders in Newberg, Ore.
Wednesday 8/
American International Group,
Booking Holdings, Capri Hold-
ings, CVS Health, Fox, NRG En-
ergy, and TripAdvisor report quar-
terly results.
Costco Wholesale reports its retail
sales data for July.
The Federal Reserve reports con-
sumer credit data for June. Expecta-
tions are for an increase of $17 billion
in total outstanding consumer credit
at the end of June. If estimates are
met, consumer debt would surpass
$4.1 trillion, an all-time high.
Abiomed holds its annual meeting of
shareholders in Gloucester, Mass.
Thursday 8/
Activision Blizzard, Cardinal
Health , CBS, Norwegian Cruise
Line Holdings, Uber Technologies ,
and Viacom hold conference calls to
discuss quarterly results.
Electronic Arts holds its annual
meeting of stockholders via webcast.
The Department of Labor reports
initial jobless claims for the week end-
ing on Aug. 3. The four-week average
of jobless claims is 212,000.
Friday 8/
E.W. Scripps, Hospitality Proper-
ties Trust, and Tribune Media
release earnings.
The BLS releases the July producer
price index. Economists forecast a 1.6%
year-over-year rise, down from June’s
1.7%. The core PPI is expected to hit
2.3%, even with June’s data.
Day Consensus Estimate Year AgoMLinde (2Q) $1.73 $1.WECEnergy(2Q) 0.70 0.Marriott (2Q) 1.56 1.Loews (2Q) 0.75 0.Diamond Offshore Drilling (2Q) -0.88 -0.More Earnings on Page MComing Earnings
Day Consensus Est Last PeriodT June JOLTS 7,313,000 7,323,W June Consumer Credit $16.5 bil $17.1 bilTH June Wholesale Inventories 0.2% 0.2%F July PPI 0.1% 0.1%Unless otherwise indicated. a-Advanced;
f-Final; p-Preliminary; r-Revised Source: FactSetConsensus Estimate
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Anadarko Petroleumholds a special shareholder
meeting to vote on the proposed $38 billion merger
withOccidental Petroleum.Occidental avoided its own shareholder vote.
Thursday
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