CVS Is Still A Buy After A Record 2020
Over the last few months, I’ve written three separate articles telling you to buy CVS stock for your retirement portfolio.
- The Best Telehealth Stock To Own
- 1 More Reason To Buy CVS
- CVS CEO Announces Retirement – What Should You Do?
Today, I give an update after it released its latest quarterly earnings and tell you why – CVS Is Still A Buy After A Record 2020.
You can read the full articles above.
But if you don’t want to; here’s a quick recap of why I said you should consider buying John Deere.
The Single Best Telehealth Stock – CVS Health Corp (CVS)
Wait… Isn’t CVS a pharmacy and mini grocery store?
Yes, it is… But it’s also offers telehealth services.
Since the coronavirus pandemic hit the US in Mid-March telehealth visits to CVS locations increased 600%.
CVS offers these through its MinuteClinic locations in CVS pharmacies and Targets nationwide.
But telehealth isn’t just meeting with a doctor or pharmacist via a phone or video call…
It’s also prescription deliveries too.
Since Mid-March CVS says prescription delivery is up more than 1,000%.
Telehealth and prescription deliveries helped CVS same store sales grow 8% in the 1st quarter of 2020 to $67 billion.
These also increased its net income 41% to $2 billion in the 1st quarter of 2020 compared to $1.4 billion in the 1st quarter of 2019.
Why the huge 41% jump in net income compared to the 8% jump in sales?
Because these telehealth options mean lower expenses for CVS… Lower expenses with higher revenues lead to increased margins and huge jumps in profits and cash flows.
CVS is a stalwart company with solid growth over the last decade… This growth will continue going forward with its huge success in the telehealth arena as well.
The company is profitable and produces a ton of free cash flow… $11.7 billion in free cash flow production in the last 12 months alone. And it pays a solid 3.2% dividend.
Plus, its undervalued too.
As of this writing its selling at a P/CF of only 9.4 compared to Teledoc’s huge 445 P/CF ratio.
CVS is a healthy, safe, and undervalued investment that is far less risky than TDOC… While also having the ability to benefit from the new trend in telehealth.
This trend of using technology more in medicine was already coming… But now its accelerating due to the ongoing coronavirus pandemic.
If you’re looking to buy a telehealth stock… You may as well buy the best. And CVS right now looks like the best one to me.
This was proved out in the following months as CVS continued to report fantastic quarterly numbers that sent its shares rising 8.1% from late June 2020 around $64 per share to $69.64 per share as of this writing.
Its results are so great in recent months that its shares continued to rise even after its former CEO announced he was going to retire. Normally when CEO’s retire from a company the share price craters.
But that didn’t happen here because of the power and profitability of the company.
Another reason this didn’t happen… CVS just released its most up to date quarterly earnings on February 16th that showed record quarterly and full year 2020 numbers.
- Revenue rose 4.6% in the year-to-year quarterly period to $69.55 billion.
- Full year revenue was up 4.6% to $268.7 billion.
- Full year operating income rose 16.1% to $13.91 billion.
- Full year earnings per share rose 7.4% to $5.47 per share.
This is all fantastic especially considering 2020 was the worst economy the US has seen since World War 2.
Yes, costs rose in the fourth quarter – which lowered profit margins in the quarter – largely due to Covid related expenses.
But for the full year results rose due largely to a 100 million increase in prescriptions… And more telehealth visits.
And this will continue since we’re still dealing with this pandemic as of this writing.
Even better news… Since Its stock hasn’t skyrocketed since late June… CVS is still cheap enough to buy for your retirement portfolio.
It’s P/E is now 12.7.
Its P/CF is 5.8.
And its forward P/E is 9.3.
And its EV/EBIT is 13.1.
On all three metrics at the top, I look to buy investments below 20 to consider them undervalued.
And on EV/EBIT I look to buy stocks below 8.
These show that CVS is enormously undervalued right now. Which means its shares offer you a huge margin of safety right now in investing terminology.
When you invest in stocks that have a margin of safety it makes the investment safer. And it also means you should expect to earn higher returns owning it in the coming years.
The inverse of this is also true…
When you invest in a stock without a margin of safety it makes the investment riskier. And it also means you should expect to earn less owning it going forward.
For this reason – and the ones in the previous articles – I continue to recommend you buy CVS stock for your retirement portfolio.
You can also use the following links to some of our recent articles to learn other ways to protect yourself and your investments in these uncertain times.
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Disclosure – Jason Rivera is a 13+ year veteran value investor who now spends much of his time helping other investors earn higher than average investment returns safely. He does not have any holdings in any securities mentioned above and the article expresses his own opinions. He has no business relationship with any company mentioned above.