CVS Health Corp. (CVS)

Sorprendentemente todavía no existía un hilo para esta empresa en el foro aunque sí que se habló bastante sobre ella a principios de mes en otra sección:

Os dejo la opinión de Chowder sobre los últimos movimientos de la compañía:

CVS is going to blow up the balance sheet and go from a free cash flow cow to a highly leveraged company.
I don’t mind holding turnaround companies, after all we own KMI and TGT, but I liked the way they were taking the company in order to improve the headwinds they faced.
CVS is operating from a position of weakness. They lost contracts a year or so ago and it was assumed they would replace them and that isn’t happening.
The threat to CVS isn’t just AMZN, AMZN simply gets the publicity. Large corporations are now considering doing their own in-house PBM business. That would crush revenue sources.
The attractiveness of CVS to me was high dividend growth and capital gains since it was a low yielding company, and it’s going to be 3 years or more, provided everything works according to plan, for CVS to get back on that track. That’s when they say earnings will be accretive provided the synergies work out. … Key word provided.

I can always get back to CVS once the merger is complete, if I chose to, but again I don’t wish to be in the health insurance field. There is no limit to the claims, or a way to accurately predict losses. When someone has a $100k life insurance policy, at least you know the liability limit. When you insure a piece of property, at least you know the liability limit. You don’t know the limits with healthcare. And let’s not forget, the US Government was helping to subsidize health insurance companies and are now deciding not to. It’s why Obamacare will implode on its own if left to do so.

If I were going to own an insurance company, CB would be my top choice. A company like TRV would be a good choice because again, the limit liabilities are known.

The more advanced medical cures and medicine gets, the more costly the treatment gets, the higher the health insurance claims to health insurance companies. This is why I don’t wish to own health insurance companies and that’s the direction CVS is taking the company. I just don’t like the direction.

If others don’t mind owning health insurance companies, and are willing to be very, very patient, it might work out for them, I’m not trying to talk anyone out of their position. I didn’t pontificate on my reasons for selling until now and it’s only because I was asked.
I’m sure others will have good reasons for holding and I won’t rebuttal their choices. I’d support their decision if that’s what they want to do.

Vaya!. Pues tampoco le pone un futuro muy prometedor. Compré 1/4 de posición hace muy poco con una finalidad un poco especulativa, y buscando tener alguna empresa con fuerte crecimiento de dividendo. Ahora que leo eso me quedo un poco frío.

Ha vendido la posición de su hijo y alguna otra cartera.

En su hijo ha invertido el dinero en ampliar posición de BDX (Becton Dickinson and Co).

Yo seguiré en CVS. No es gran capital el que tengo y puedo esperar a ver cómo evoluciona.

BDX es un empresón, pero está cerca de máximos de 52 semanas con el SP en máximos históricos…bufff

En esta parte difiero de Chowder y le voy a dar tiempo a CVS para que arregle su estado. En mi opinion la integracion con Aetna sera favorable siempre y cuando la gerencia no deje de hacer su excelente trabajo como hasta ahora.

Yo compro CVS mensual y ya casi la llevo al tamaño en el cual dejo de comprar mensual y utilizo ese dinero para ir incrementando otras compañias…dejare que CVS crezca sola hasta que llegue su turno de ponerle mas capital.

Yo tengo una posición pequeña aquí y no la voy a vender al final, pero tampoco voy a aumentar. No van a recortar el dividendo parece, algo es algo, pero la compra de Aetna pinta a que la han pagado muy sobrevalorada. No obstante, el track record de la compañía es impecable hasta ahora, así que habrá que darle un voto de confianza a ver como se manejan con esto. También que sobre los 70$ no parece que sea un buen momento para vender.

Entiendo la venta de Chowder ya que, en cierto modo la tesis de inversión y el gran incremento de dividendo de CVS se ha ido al carajo. Yo también me pillé un buen rebote y en caliente me dieron ganas de vender. Pero vuelvo a no entender su compra, eso de comprar Becton Dickinson a estos precios. Además, si CVS no recorta el dividendo como parece, estaríamos hablando de casi un 3% de RPD ahora mismo, mientras que a estos precios Becton da como un 1,38% inicial. Se calcula que CVS va a tener que congelar el dividendo como 2 años para digerir la deuda…pues bueno, ya veremos si le sale bien la jugada, pero a priori no esta tan claro que mirando el cambio desde un punto de vista income le vaya a salir mejor (o sustancialmente mejor) el cambio.

Que opináis de los resultados de esta empresa? Con los últimos resultados ha bajado más de un 10% adicional, está casi al 50% de los máximos de hace unos años.

Con los números actuales está a un per 8-12 según se coja EPS ajustados o no, reduciendo deuda (aunque menos de lo esperado por lo visto), generando caja y aunque no incrementen el dividendo renta más de un 3% ya.

Me está tentando.

Esto dijo Chowder ayer:

Se puede equivocar claro:

Oh wow! This is encouraging. Just looked a chart for the first time in a long time and I looked to see what CVS did today because I didn't know. I can read candlestick charts and that little puppy is showing as much encouragement as I stated earlier on revenue growth. There was huge volume today and there were a lot of shares being gobbled up to the point that this was a buy the dip scenario.This doesn't mean CVS is taking off from here, but it does mean price could start building a base here which would be a positive for CVS on a technical analysis basis.If I were still trading, it would be on my watch list, but I'm not going to trade or follow along. It was simply a curiosity.
Feb 20, 2019. 04:47 PMLink An Older Folk Portfolio - Chowder
Cercle Finance - 20/02/2019
( - CVS Health has reported adjusted EPS that is up 11.5% at 2.14 dollars for the last three months of 2018, five cents above the consensus, with revenues up 12.5% to 54.4 billion dollars.

“With the completion of the Aetna acquisition, we have set the stage for CVS Health to excel in a market that is rapidly transforming,” President and Chief Executive Officer Larry Merlo said.

Having reported adjusted EPS of 7.08 dollars, with sales growth of 5.3% to 194.6 billion dollars over the full year, CVS Health expects adjusted EPS of between 6.68 dollars and 6.88 dollars in 2019.


CVS Health: This Despised Blue Chip Offers Market-Beating Total Return Potential

<time>Feb. 12, 2019 11:03 AM ET</time>
About: CVS Health Corporation (CVS)
Kody's Dividends
Dividend investing

Although CVS has elected to freeze its dividend to deleverage following its deal to acquire Aetna, CVS has a stellar dividend-paying history that is likely to continue.

Despite the $40 billion in debt taken on by CVS to buy Aetna and additional risks, CVS has a reasonable chance for solid growth in the years ahead.

CVS is currently trading at a 16% discount to fair value, offering investors a reasonable margin of safety.

When these factors are combined, the case for an investment in CVS at current prices becomes compelling, offering a high probability of 15% total returns over the next 10 years.

As an investor with experience only dating back to September 2017, I often find it helpful to seek the perspective of a more experienced and versatile investor.

One such individual that I seek wisdom from is Warren Buffett. Buffett is famous for not only being a wise and practical man, but also for being one of the greatest investors of the past 100+ years. His "Buffettisms" are the thoughts and ideas that guide many investors with a long-term time horizon in their investment strategies.

One of the more prudent Buffettisms was in the 2004 Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B) Chairman's Letter and was as follows:

Image Source: TheStreet

Although I'm an investor that believes in owning individual equities because of my love for the analysis that goes into investing, not to mention my belief that the market is inefficient in valuing businesses over the short to medium term, I'm also an investor that believes in dollar-cost averaging into the market through various holdings over time.

It is with that said, that I'll delve into a particular equity that I believe fits the above Buffettism for those who are tolerant of the risk profile of the investment opportunity presented below.

That investment opportunity is CVS Health (CVS). Since peaking at over $112 a share in July 2015, CVS has fallen 42% to just above $65 a share at the time of writing. For context, this precipitous drop has occurred while the S&P 500 has delivered 27% returns (or 7% annual returns during the same time period). One would believe by examining the chart of CVS Health compared to the chart of the S&P 500 that the fundamentals of CVS have materially deteriorated, when in fact, that isn't the case. The company has grown earnings by an average of 10% per annum over the past 5 years and is poised for an acceleration of that growth to 12% per annum over the next 5 years, per Yahoo Finance analyst estimates

This isn't to say the drop has occurred over nothing (as we'll discuss in more detail in the risks to consider section), but I believe it is reasonable to say that this drop while the market rose during that same time does highlight the inefficiencies of the market over the short and medium term.

I believe that the market has cast their vote and that in the short to medium term, CVS will continue to be an "unpopular" stock due to the market's fixation on the risks facing them and the dismissal of the opportunities that will likely materialize in the coming years.

CVS offers investors an opportunity to collect an above-average dividend yield compared to the S&P 500 (though currently frozen dividend due to management's deleveraging strategy), growth catalysts over the long term, and a current price that suggests undervaluation in comparison to fair value of the company.

We'll delve into these factors and how I believe these factors will coalesce into CVS being an investment that will beat the market over the long term.

Reason #1: A Safe, Soon To Be Fast-Growing Dividend

As I've outlined in the past, I consider dividend safety and dividend growth potential to be a testament to the fiscal responsibility of a management team over the long term.

As a dividend growth investor, my investment strategy is to find companies for my portfolio that offer a combination of both dividend safety and dividend growth.

Image Source: Simply Safe Dividends

As evidenced by the dividend safety score of 93 awarded by Simply Safe Dividends, the dividend of CVS is well-covered.

Next, we'll delve into why both Simply Safe Dividends and I believe the dividend of CVS is very safe by examining both the company's EPS payout ratio, and the company's FCF payout ratio.

Image Source: CVS Health Q3 2018 Earnings Presentation

Upon examining the adjusted EPS guidance for 2018, we can see that the midpoint of CVS adjusted EPS guidance is $7.03, compared to the annualized dividend of $2.00. This equates to a current year EPS payout ratio of just over 28%, indicating the dividend is, in fact, safe.

The second aforementioned metric is the FCF payout ratio, which is more highly touted by many analysts over the EPS payout ratio because unlike the EPS payout ratio, the FCF payout ratio measures the amount of cash a company has at its disposal after business operations to pay dividends, pay down debt, or fund acquisitions.

According to CVS Health's Q3 2018 Financials, the company issued FY 2018 FCF guidance of approximately $7.0 billion while dividends paid in 2018 should be around $2 billion. This leads us to a fairly similar FCF payout ratio of 28% compared to the EPS payout ratio.

Using both metrics, we can see why Simply Safe Dividends awarded CVS Health one of the highest dividend safety scores possible.

However, that dividend safety alone isn't going to be enough to provide an inflation-crushing series of dividend increases in the years to come. Fortunately, I do foresee CVS resuming its dividend increases sometime in 2020 or 2021 once the company achieves its objective to deleverage to what it believes is a reasonable debt load, following the Aetna acquisition.

Image Source: Simply Safe Dividends

As we alluded to with the 5-year earnings growth forecast for CVS, I do believe that in a couple years, CVS will resume not just dividend growth, but meaningful dividend growth.

I don't believe the dividend growth will resemble the growth we have seen over the past 5 years and 20 years, respectively. However, even a deceleration to dividend growth that roughly mirrors EPS growth would mean in a conservative scenario, dividend growth of high-single digits.

In my view, that's a compelling combination of dividend safety and dividend growth in the coming decade and beyond.

We'll now delve into why some analysts are bullish on the long-term outlook of CVS.

Reason #2: Growth Catalysts With A Long Runway

Image Source: CVS Health Investor Fact Sheet

Although CVS Health initially began as a pharmacy chain, it has since expanded into one of the nation's largest pharmacy benefit managers or PBMs with its 2007 acquisition of Caremark.

Given that the mega-merger with Aetna recently closed for $78 billion (including debt), CVS has firmly established itself as one of the largest and most vertically integrated healthcare companies in the country. As prescription volumes increase, the costs of administering such prescriptions barely increases. This means that the economy of scale that CVS currently boasts will continue to benefit the company.

Image Source: CVS Health Investor Fact Sheet

As evidenced by the above graphic, CVS enjoys a strong market share throughout the healthcare landscape. The sheer scale of CVS means that over 75% of Americans live within 5 miles of a CVS pharmacy and 1/3 of the US population interacts with the company in some way each year.

The primary intention of the CVS/Aetna merger is to enable CVS to get ahead of the cost-cutting curve, in which politicians, consumers, and companies are all desperate to find ways to improve efficiency and reduce waste.

Image Source: CVS/Aetna Merger Presentation

CVS believes that by leveraging its tremendous scale, it can help achieve $25-100 billion in annual savings through initiatives, while also benefiting from billions in additional profits.

CVS expects to fulfill this by investing extensively in its technology, thereby reducing pharmacy mistakes and improving patient care via minute clinics.

Management expects to achieve over $750 million in cost synergies by the end of the second year of the merger, which is 2020. Besides the elimination of overlapping administrative functions through the merger, CVS expects to achieve the cost-cutting goals by simplifying the drug formulary and health plans in comparison to when CVS and Aetna were each independent, standalone companies.

These measures by themselves would boost profitability. This is without even considering that the net margins of Aetna were more than double that of the margins of CVS in 2017.

In addition to the cost synergies and boosted profitability as a result of the merger, CVS also intends to invest billions in repurposing some of its pharmacies into healthcare hubs.

Image Source: CVS/Aetna Merger Presentation

CVS envisions approximately 20% of its under-performing retail space will be transformed into healthcare clinics, which are not only more profitable to CVS, but also offer more utility for consumers.

It's this added utility that this transformation will provide customers that will ultimately lead to a wider moat for CVS. As we all know, the more value a company can provide for its customers, the wider its moat theoretically becomes.

Though this massive acquisition of Aetna can be scary to think about at times, it is reassuring to realize that the last major acquisition that CVS engaged in was the Caremark acquisition. It was that major acquisition that transformed CVS from a pharmacy chain into a PBM, rewarding shareholders with impressive dividend growth over that time.

This Aetna acquisition unlocks a whole lot of potential savings and value for consumers, which should translate into success for CVS as well. Having brought this up, it would only be fair that I present the risks that CVS will face both in the short-term and in the long term. As we know, there is no "safe" equity investment and CVS is no exception to this rule.

Risks To Consider:

In their acquisition of Aetna, CVS took on $40 billion of debt, at an average interest rate of 4.2%, in addition to anticipating the need to issue around 285 million additional shares of stock to fund the Aetna acquisition. That massive amount of debt that CVS incurred to acquire Aetna came with an inevitable credit downgrade by Standard & Poor's from BBB+ to BBB, among other credit rating firms. The share dilution also does pose a risk to CVS shareholders should the expected $750+ million short-term synergies not materialize as expected. The near-term effect of this mega-merger is that there will be a material dilutive effect on adjusted EPS as the cost of revolutionizing healthcare over the long term.

Image Source: CVS Health Q3 2018 Earnings Presentation

Because a strong balance sheet is critical to the overall prospects of a company's financial health, CVS has announced its intention to reduce its combined pro-forma debt to EBITDA ratio from the current 4.6 to 3.5 within 2 years of the Aetna deal closing. Looking out longer term, CVS is aiming for a low 3 leverage ratio. CVS intends to do this by suspending its share buyback program, in addition to freezing the dividend until the desired leverage ratio of around 3 is achieved.

While the interest coverage ratio of CVS of 4.8 leaves quite a bit to be desired in terms of balance sheet strength, this will rapidly improve over the next couple of years with CVS allocating billions to debt repayment, reducing that leverage ratio considerably as I mentioned above.

Image Source: CVS Health Q3 2018 Earnings Presentation

Other headwinds that are in the short term include pricing and reimbursement pressures from insurance companies and major medical companies (who are also consolidating in an effort to increase their economy of scale and bargaining power with companies such as CVS, thereby potentially reducing the margins of CVS). Another headwind in 2019 and beyond is that with 2018 behind us, CVS won't be expected to benefit from tax reform in the years ahead.

Yet another headwind in the near term is as the company is transitioning from pharmacies into healthcare hubs, this will cost several billion dollars and result in limited FCF growth. Fortunately, this should result in long-term benefits for the company in terms of increased profitability and a widened competitive moat.

A more long-term risk is that given the extensive involvement of the government in the healthcare industry, regulatory risk needs to be a concern that investors consider.

Recently, the Department of Health and Human Services proposed a new rule banning backdoor rebates between drug companies and PBMs, in addition to Medicaid managed care organizations and Part D plans. This would pass on 26-30% (compared to list price) of the typical drug rebate onto consumers.

Though this proposed rule should theoretically have little impact on CVS, as with all considerable government healthcare regulatory changes, there is a degree of uncertainty that accompanies these types of proposed rule changes.

An additional risk facing CVS in the long term is the strategic alliance between Amazon (NASDAQ:AMZN), JPMorgan Chase (NYSE:JPM) and Berkshire Hathaway that aims to reshape the healthcare landscape. Given that these three companies boast some of the best business minds in the world, there is a real possibility this alliance could potentially alter the healthcare landscape and compete with CVS.

However, having discussed a few of the risks facing CVS, the one we haven't yet mentioned is the most important consideration for a current or potential CVS shareholder to consider.

The majority of the 2020 Democratic presidential candidates have endorsed Bernie Sanders' "Medicare for All" single-payer plan. Should the "blue wave" of the Democrats be realized in 2020, with them taking control of the White House and Congress, this could result in the passage of a single-payer plan potentially. If this were to occur, this would devastate private health insurance in the US by possibly banning it.

It goes without saying that if the final risk materializes, that could be catastrophic for companies such as CVS. This would break my investment thesis, rendering CVS a sell rather than the strong buy that I consider it today.

Reason #3: CVS Health Is Currently Trading At A 16% Discount To Fair Value

Having discussed the merits of an investment in CVS, we now arrive at the current price to fair value aspect of the case for an investment in CVS.

I'll use a variety of methods to arrive at what I believe to be fair value for CVS and we'll compare that to the current price, highlighting the chasm between the fundamentals of the company and current market sentiment toward CVS.

First, we'll examine CVS Health's current price to cash flow ratio and compare that to the historical ratio, in addition to the current broader market's ratio.

Per Morningstar, CVS is currently trading at a price to cash flow ratio of 10.59, against its 5 year average of 11.73 and the broader market's average of 12.40. The company is trading at a 9.7% discount to fair value compared to its average price to cash flow ratio over the past 5 years, offering 10.8% upside in multiple expansion. This would indicate that against the current price of $65.01 (as of February 10, 2019), the fair value of CVS using this valuation method is $72.01.

In addition, Morningstar also awards CVS a fair value of $96 a share. This doesn't necessarily mean that Morningstar is infallible (none of us are), but it only serves to reinforce the notion that CVS is undervalued. Quantifying that degree of undervaluation is as much art as it is science, but as long as one is even somewhat optimistic on what the future holds for CVS, they would agree with this argument.

Moreover, Simply Safe Dividends notes that the dividend yield of 3.08% is 69% above its 5-year average of 1.82%. While part of this is due to the rise in interest rates over the past several years and the flight to treasury notes, this serves as additional evidence that CVS is currently undervalued. Rather than use the 5-year average of 1.82% (indicating a stock price of $110 a share, which would prove to be a marked overvaluation), I will build in a more reasonable reversion to a 5-year average yield of 2.5% as this compares more favorably to the 2.98% 30-year treasury yield, offering more growth opportunity to compensate for the increased risk profile that accompanies an equity investment.

Applying a 2.5% fair value yield, we arrive at the conclusion that CVS is currently trading at a price to fair value discount of 18.7%, offering 23.2% upside in terms of valuation expansion during its reversion to a fair value yield. This would translate into a fair value price of ~$80 a share.

Image Source: Investopedia

As a final indication of undervaluation, we can look no further than my estimation of fair value using the dividend discount model or DDM. For the intents and purposes of this article, I'll be using the single stage DDM rather than the multi-stage DDM for the sake of simplicity and to better illustrate my point.

Using the current annualized dividend of $2.00 per share, a required rate of return of 10%, and a conservative long-term dividend growth rate of 7.5% (roughly half the 20-year DGR), we arrive at a fair value of ~$80 per share.

Because I aim to be conservative in my fair value estimates, I will exclude Morningstar's fair value estimate of $96 from my fair value estimate. In doing so, we still arrive at a fair value of $77.34 a share. This would indicate CVS is currently trading at a 15.9% discount to fair value while offering 19% upside, on top of the dividend and earnings growth accompanying the investment in CVS.

Summary: CVS Health Offers Investors A High Probability Of Market-Beating Total Returns

While I'll concede I don't have a crystal ball as one can't predict for certain whether management will be able to execute on growth catalysts and minimize risks facing the company, I believe CVS offers a high probability of delivering market-beating total returns over the long term.

CVS offers an above-average dividend yield, both in terms of its historical dividend yield and in comparison to the broader market. While some would say this suggests the company could be a value trap, I will argue to the contrary.

Though the Aetna merger does mean CVS has taken on $40 billion in debt, it also means that CVS has the opportunity to fundamentally transform the healthcare industry. It will take strong management to execute on this generational type opportunity and I believe CVS has the management to deliver on its promises, which leads me into my next point.

While the market is discounting the capabilities of CVS to capitalize on this opportunity, this has pushed the current price of CVS to both an attractive entry point for investors looking to initiate a position or for current CVS shareholders to add to their position.

When we couple the ~3.1% starting yield, a highly conservative earnings growth rate of 8%, and even a static multiple valuation, we arrive at 11.1% total returns over the next 5-10 years. In even a slightly disappointing scenario, we could see total returns of 14.9% in the next 10 years. (3.1% yield plus 10% earnings growth plus an average annual 1.8% multiple expansion). The bottom line is CVS could fall short of the analyst estimates of 12% earnings growth over the next 5 years and still prove to be a market-beating investment.

Disclosure: I am/we are long CVS. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.


"Narrow-moat CVS Health reported fiscal 2018 results that largely met our expectations for the legacy business, but the addition of Aetna created some volatility in the reported numbers. However, the highlight was 2019 guidance that fell short of our profit expectations across the board while missing prevailing consensus estimates by an even wider margin. As we adjust our model, we may tweak our $96 per share fair value estimate, but we continue to view the firm as deeply undervalued despite the weaker outlook. While 2019 appears to be a more onerous transition year than originally anticipated, shares represent compelling value at current market prices that imply less than 10 times adjusted earnings.

A good portion of the shortfall in 2019 stems from ongoing weakness in the firm’s long-term-care business that’s led to depressed profitability in the retail segment. Management took two separate goodwill write-downs over the course of 2018 as a result of end-market disruption affecting its skilled nursing customers, totaling nearly half the amount spent to acquire Omnicare in 2015. While that was a disappointing outcome for shareholders, we plan on leaving our Standard stewardship rating in place for now. Moreover, persistent prescription reimbursement pressure at the pharmacy combined with a lack of generic launches and weaker branded drug inflation expected in 2019 culminated in overall segment operating profits set to fall at a high-single-digit rate over the coming year.

On the pharmacy benefit management side of the business, performance should be more closely aligned with our model that already calls for structural margin pressure in the coming years. That said, 2019 and 2020 will be further affected by incremental costs needed to coordinate the firm’s new partnership with Anthem. That said, Centene’s decision to bring in-house its PBM operations over the next few years should partially offset the long-term benefits from adding Anthem’s claim volume"

De SeeksQuality, que hoy ha aumentado su posición en CVS (a 62,7$).

"anybody thinking of buying or selling CVS on this earnings report really needs to read through the full conference call (transcript on SA) and slide deck.

What strikes me is how many initiatives are in progress! From the first few pages of the slide deck:

  • Continued rollout of MinuteClinic, claiming 80% of primary care services now available there.
  • New concept stores unveiled this month, the next-gen MinuteClinic.
  • Home visits by Coram for infusion services, up 15%.

They are up front about the challenges – price pressure on pharmacy, questions surrounding PBM rebates, and LTC weakness. But they also have what I believe are solid initiatives in place to address them.

  • A new PBM contracting model, guaranteeing client cost and passing on all rebates to the customer. They aim to prove that they can generate customer value without any shady dealing. (Can the other PBM’s do the same? CVS/Caremark is one of the stronger ones.)
  • Cost controls in the LTC segment. This is necessary, if poorly defined. If the division is losing money, then work to prune it back until it becomes profitable again.
  • Synergy with Aetna. Delayed by the slow approval process and delayed further by the consent agreement with the judge, but I believe that runs just six months (and the clock is already ticking). Once they receive final approval, they may be able to more fully exploit the verticals.
  • Product differentiation for Aetna, through the consumer-facing segments of CVS.
  • Technological partnerships, such as Attain by Aetna (Apple Watch) recently announced.
  • New health care offerings in place for 2021 selling season. You can bet these will be unique to CVS/Aetna, as there is no other company that spans so many verticals in healthcare. (United Health is another integrated offering, but lacks the consumer front.)

Now maybe I’m living in a cave, and everybody else is already doing these things? Maybe CVS is chasing the competition (like IBM in the cloud?) and merely trying to rehash the same old stuff with new window dressing? Or maybe this is an entirely new model for health-care delivery that will add a low-cost easy-access service tier to what is already in place?

My belief is that much of this is truly innovative, and will drive revenues over the next three years. The most novel stuff isn’t really ready for 2019, but pieces of the program will gain traction by 2020 and I expect everything announced to be launched by 2021. By 2022 we should be seeing full benefit from these initiatives – though I would expect continuing growth beyond that.

The risk is that these bomb, stifled by regulators, poor consumer buy-in, etc. You can point to the Omnicare acquisition that they overpaid for as an example that management isn’t perfect. What company is? Apple, Amazon, Google, Microsoft… Have none of them ever seen a project or acquisition bomb? Acquisitions are risky, because you are always betting that you can generate more profit from the business than the current operators.

So why is there any reason to believe that CVS/Aetna will be able to generate greater profit than CVS and Aetna as stand-alone? Look to the slide deck and see if that answers your questions."

"The debt is definitely huge! The combined company has $138B of liabilities, up $80B from last year. Assets are up $100B, but about $65B of that is Goodwill and Intangibles. Insurance operations carry both Assets and Liabilities, so the large increase in numbers is to be expected, but we are still looking at a heck of a lot of net debt.

Looking at the debt maturities, I would guesstimate that half their operating cash flow over the next three years will go towards retiring debt. That is huge, but not unsustainable given their moderate dividend. The deal was financed with 3, 5, 10, 20, and 30 year borrowing, but on top of the other debts it seems likely that the 2021 maturities are the major hump. If they can get past that successfully, without the need for an equity raise, then they will be in great shape going forward.

This article focuses on the debt, with a skeptical tone:…

They quote 4.6x Debt/EBITDA, which sounds about right to me. They need to clear about 20% of that debt to retreat from “scary” levels and 30%+ to get back to healthy levels, HOWEVER an increase in EBITDA would contribute to clearing the excess. They presently have a bit over $70B in debt, so clearing $15B (along with a 10%-15% increase in EBITDA) might get the job done.

In short, they need to pay down those 2019, 2020, and 2021 maturities as/before they come due. Not much due this year. The 2020 maturities should be easy enough to clear. And that 2021 bill of $10B? If they haven’t gotten started on that by 2020, it will be a tough bill to handle – they would need to roll it out further in that case. On the other hand, there is every reason to expect that they can manage the whole $15B+ if they spread it out evenly over 2019-2021. We are looking at $10B+ OCF and $7B+ FCF. Their dividend run rate is around $2.5B. They can’t afford share buybacks or further acquisitions (!), and they can’t afford a meaningful dividend increase, but they ought to be able to maintain the dividend and repair the debt by the end of 2021."

"Right now we are looking at a price of ~9x forward earnings, with growth expectations of 9%-10% going ahead from here. A company with that kind of growth will typically trade at 15x-20x earnings, even with a substantial risk premium baked in. Thus if CVS can execute over the next two to three years, I expect a P/E expansion of 50%+ in addition to fundamentals growth of 9%-10% and an ongoing yield of 3%.

If management can hit expectations, you could be looking at a 25% annualized total return over the next three years. There are real risks involved, but the valuation cannot be ignored. It is a similar P/E to AT&T, which is facing its own debt/integration risk and would be thrilled with 5% fundamental growth (a more realistic estimate is 2%). It is substantially cheaper than IBM which is facing its own major debt/integration risk and is a year behind in the assimilation process, and again which is looking at 2%-5% growth. It is 20% cheaper than WBA which has the same Moodys debt rating and fewer growth avenues going forward. It is 30% cheaper than GIS, another debt/growth/turnaround candidate hoping for 5% growth.

I know dividend investors will point to the yield and the dividend freeze as evidence that T, IBM, and GIS are much better values, however in my opinion you are buying the COMPANY and the CASH FLOW rather than the DIVIDEND. And right now CVS is comparable/cheaper than those three, with superior fundamental growth prospects.

Think about it – the three year plan has them spending $2.5B annually on the dividend and $5B annually on retiring debt. By the end of three years (if not a year earlier due to EBITDA growth) the need for aggressive debt retirement will be past. They could easily choose to double the dividend payment at that time. More likely, they would aim for a 30% payout ratio (which in recent years they have indicated as a target) and a $3/share dividend, a 50% increase from the current level.

That won’t happen this year. That won’t happen next year. If they were to announce a large dividend increase this year or next, I would immediately sell. That would be a STUPID decision for management, when they need to first fix the debt. But once the Debt/EBITDA is down to the low 3’s, you can expect large increases again with a “catchup” increase covering the last 2-3 years. I do not believe they intend to permanently limit the payout."


Con Cvs ocurre lo de siempre.

Cuando hay dudas es cuando mas dificil es comprar.

Nada garantiza que le vaya a ir bien.

Pero si le va bien, en x tiempo puede ser una accion en cartera de una empresas de sector defensivo consumer-health etc… que se vaya a los 90s $.

Es lo mismo que haber comorado

PG a 70s… hoy quieren llegar a 100$ para hacer split. Y cuantos años de lateral antes de despegar?

Wmt a 58. Nike a 52. Apple a 90s. Visa a 70. Bac a 12. Amex a 53. Cisco a 31. Intel a 29. Abbot a 38. Mcd a 116. Nestle a 70. Diageo a 18. Allianz a 126. Vfc a 50 Shell etc…

Estas ahora no estan a saldo por dudas.

Estan Cvs Cah Gis Ibm etc… por dudas…

Ahi es donde subyace el riesgo- beneficio.

Puesto que tuve la suerte de coger los precioa señalados arriba, soy consecuente con mi forma de hacer y ayer anadí 4 Cvs, que oor supuesto las llevo en oerdidas ( pero fijemonos cómo la subieron de orecio antea de resultados: si iba bien la disparan, si iba mal… estamos donde estabamos. Eso no les ocurre a ctl tup coty etc… es una especie de proteccion de suelo de base… porque saben que las comoras que han hecho endeudan… pero si funcionan…)

Por supuesto, hay cagadas. Que no suelen ser las grandes. Está GE pero lo demas no son Grandes en apuros sino Pequeñas en apuros: Carillion Conviviality OwensMinor Telstra Centrica Wpp Person mineras junior etc. Estas muchas veces se salvan metiendo poco dinero de exposicion… y no pensando que son perlitas que el mercado no aprecia, jaja… pero nosotros sí vemos su potencial…!

Nos gustaria que todas explotaran rapido tras compra tipo Abbot Vfc. O de forma constante: V.

Pero muchas tienen largos laterales previos: pfe cisco nike pg… o inciertos: ibm.

Y algunas desesperan al santo job: gilead science jaja.

Una tactica que me gusta es quitarme las mierdillas en perdidas tax loss harvesting… y comprar grandes en caida: tipo Siemens Fresenius SaintGobain Dhl o estrategicas cuore itw mmm ben que a veces recuperan el valor un 20% rapido pues sufren solo la caida de mercado global. O empresas que han caido un 50% o mas como Molson Coors o Playtech poco ésta.

Es una forma paralela o puntual de hacer ( paralela a la de simplemente Construir ) ya que lo que hago es De-construir parte de la cartera y Re-construirla generando un nuevo Todo mas compacto más fuerte más resistente más consistente mejor compensado.

En esto no sigo a chowder beats ni manup ni fortaleza, ni a constructores de movimiento unico claro e impasible como DividendHawk, ni a inversores de screeners ni a nadie. Me sale asi.

Cada vez que salimos de un crash 20%… miro al Todo y lo veo mas fuerte y me gusta mas. Lo importante es que salgan nuestros experimentos con gaseosa tipo pigdemont que no dan resultado alguno, y entren en su lugar empresas más solidas y con menos gas.

Porque decimos que vamos a largo plazo long long no?

Si una empresa la considero grande buena y defensiva no la vendo con +20% porque puede llegar a +50 o + 80%. En todo caso le pondria el stoploss cosa que nunca he usado aun.




Tengo cartera amplia, diversificada, liquidez… por lo que si hoy sigue bajando añadiré más. Siempre decimos que estos son los momentos, cuando hay dudas. Veremos.

Preik, has comprado ayer ¿pero para qué las quieres? ¿Son para venderlas si suben en el corto-medio plazo o te las piensas quedar?


Tengo cartera amplia, diversificada, liquidez… por lo que si hoy sigue bajando añadiré más. Siempre decimos que estos son los momentos, cuando hay dudas. Veremos.

Preik, has comprado ayer ¿pero para qué las quieres? ¿Son para venderlas si suben en el corto-medio plazo o te las piensas quedar?


Te soy sincero:

(No he comorado ayer. He añadido ayer. Y las llevo en perdidas.)( He ampliado el comment anterior editado.)

a) nunca he comprado una empresa grande con intencion de venderla. Me gusta quedarmelas.

b) cuando he comprado una menos grande o pequeña para venderla … tampoco la he vendido.

Solo he vendido empresas en perdidas.

Tu mira abt.: la llevo a 38. La vendo? En mi forma de ser, no la vendo ni loco. Ni lo pienso. Sus dueños y empleados estan trabajando para mí. Lo han hecho great. Les dejo seguir. La ganacia la llamo Margen de seguridad.

Si tu llevas abbot a +84% + dividendos y viene el crash tan DESEADO tendras una empresa que tras caer un 35% aun la tienes en +45% o lo ke sea. ¿ Tu sabes lo que sicologicamente valdra eso para ti? Ni lo imaginas.

Nos creemos que la sicologia consiste en aguantar un -50???

La sicologia sera eso pero hay que prepararla ahora HOY construyendo Margenes de Seguridad Margenes a caida Cash flow de dividendos.

Si cvs sale reforzado de esta. Será una empresa para quedarse en ella. No tengo dudas. Y si sale de esta, todo el mundo pagara 20- 30€ mas que ahora porque dira que es una Graaan empresa. Estando ahora tendre la oportunidad de venir desde abajo.

Ojo puese ir mal, pues no metamos mucho.

Volvendo a a) es que a mi ver Abbot en +84% me da PAZ, gusto, alegria!!!

Si la fusilo cojo el dinero; y ya no veŕé el +84%. Lo puedo reinvertir y perderlo jeje.

Cuando alguien tiene un orgasmo no quisiera que se acabe.

¿Voy a vender abt v pep clx kmb ko y todas las señaladas que esten en verde… para dejar una cartera escualida en los huesos debil y enrojecidaaaa??


Motivo 1 Son cuore.

Motivo 2 No quiero mirar a lo que quede de cartera y ver rojo y promesas.

Prefiero conservar las Realidades, las que performan bien las que han subido de Escalón ( e igual ya no bajan al anterior) !

Es que soy un filosofo de la inversión. Mi propia filosofia ok. A mi me gusta sentir pensar y escribir. Por eso no tengo excels ni screeners. No los necesito de momento. Miro a los de otros.

Ahora tambien te digo que yo siempre he pensado y actuado muy distinto a los que me rodean. Entonces admito que lo que yo siento pienso y hago no es lo normal. Pero para mi es lo normal y soy feliz asi.

Era por saber. Yo no compro para vender. Abbott en 37,53$ las llevo. Ni aunque estén a 130$ vendo.


Era por saber. Yo no compro para vender. Abbott en 37,53$ las llevo. Ni aunque estén a 130$ vendo.



“Si tu llevas abbot a +84% + dividendos y viene el crash tan DESEADO tendras una empresa que tras caer un 35% aun la tienes en +45% o lo ke sea. ¿ Tu sabes lo que sicologicamente valdra eso para ti? Ni lo imaginas.“


Que grande esto Prei. Para tatuárselo y no olvidarlo nunca. Cuando te pones modo filosofo a veces tocas la fibra de verdad!

“Si tu llevas abbot a +84% + dividendos y viene el crash tan DESEADO tendras una empresa que tras caer un 35% aun la tienes en +45% o lo ke sea. ¿ Tu sabes lo que sicologicamente valdra eso para ti? Ni lo imaginas.“

Que grande esto Prei. Para tatuárselo y no olvidarlo nunca. Cuando te pones modo filosofo a veces tocas la fibra de verdad!

Bueno. Madelman ya lo sabia. Yo escribo sin pensar ni mirar la cartera de quien que preguntó. Escribo largo como si no tuviera que ir a trabajar o a aparcar… Y muchas veces meto la pata porque hablo demasiado o fuera de lugar.


Comentario de Capturando Dividendos de este viernes:


La perdida que ves de -$0.57 se debe a la unión y compra de Aetna ahora que esta diluido también su negocio Omnicare que resulto una perdida para el año 2018 de $6.1 billones. Omnicare se dedica a Long Term Care (LTC) que es el cuido de ancianos. Desafortunadamente este sector LTC ha sufrido mucho son negocios como por ejemplo de Omega Healthcare Investors (OHI). Prácticamente Omnicare es una farmacia para este tipo de negocio y no al publico como tal como lo es la farmacia CVS. Omnicare distribuye medicamentos a pacientes que se encuentran en cuido como por ejemplo ancianos. Aquí te dejo mas información:

La perdida anual se ve asi como la ves pero creo que hay que saber por que es una perdida para no confundirse. Si se ajusta su beneficio por acción seria $7.08 como indican.

Entonces el negocio tuvo una perdida en sus intangibles así como Kraft. De todas formas el negocio salió bien en el 2018. Su casflow fue de $8.9 billones y después de pagar el dividendo aun le quedo $6.8 billones para el negocio. Así que las ganancias están ahí y eso sin el control completo de la adquisición de Aetna. Cerraron su unión a finales de Noviembre 2018 así que solo se acredita un mes en sus ganancias.

Por que cae CVS?

En mi opinión por varias razones.

Muchos inversores no saben y entienden como Aetna/CVS podrían integrarse juntos y funcionar.

Dieron una guía baja para el 2019 comparado con el 2018. Lo que hay que entender es que dieron una guía conservativa dado que algo así nunca había pasado con CVS.

La perdida en los intangibles no les gusto mucho a los inversores. Además de como CVS podrá recuperarse de la perdida echando su negocio de Omnicare hacia delante en ese campo tan difícil hoy día.

Yo creo en lo personal que es una fabulosa oportunidad. Tenemos un dividendo seguro de por medio con un excelente payout. Tenemos una empresa transformándose con lo mas recién de tener clínicas medicas donde pueden atender varios casos en donde no solo te atienden, te recetan tus medicamentos y a lo que esperas puedes comprar tus cosas que necesitas en la sección Retail como comida, bebidas, juguetes, cosas de belleza, etc.

Es un negocio fácil de entender no propuesto a recesiones pues todos necesitaremos medicamentos o tratamientos de cualquier tipo en cualquier momento.

Estaré capturando mas aquí abajo por lo que sigue es la empresa mas odiada o al menos una de ellas por ninguna razón. Sus fundamentos son excelentes en estos momentos. Ahora toca ver que bajen la deuda como prometieron es lo mas que estaré enfocado este año todo lo demás esta bien.

Me gusta su forma de ver las empresas porque hace un análisis muy de “usuario” y ve los aspectos que más gustan a los clientes de a pie. Aumentaré mi posición en CVS con la entrada de cash de este mes.

Un saludo!

Entro en esta empresa a primera hora de hoy, esperemos que la empresa cumpla con sus previsiones de enderezar el rumbo y a finales de 2019 retomar los dividendos crecientes y recomprar acciones (si cotiza en por estos derroteros 50-60$ casi mejor que se dedicará todo el FCF restante a recomprar acciones).

Pdata: como es el mercado, casi no he acabado de pulsar el botón comprar y ya pierdo casi un 3% extra.