Intrinsic value of CVS Health - CVS

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$82.44

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$82.44

 
Intrinsic value

$249.22

 
Up/down potential

+202%

 
Rating

str. buy

 
Value-price divergence* premium content

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*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of CVS stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 84.2

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  15.81
  11.70
  11.03
  10.43
  9.88
  9.40
  8.96
  8.56
  8.20
  7.88
  7.60
  7.34
  7.10
  6.89
  6.70
  6.53
  6.38
  6.24
  6.12
  6.01
  5.91
  5.81
  5.73
  5.66
  5.59
  5.53
  5.48
  5.43
  5.39
  5.35
  5.32
Revenue, $m
  177,526
  198,297
  220,169
  243,126
  267,157
  292,259
  318,434
  345,694
  374,057
  403,548
  434,200
  466,054
  499,156
  533,559
  569,324
  606,516
  645,209
  685,479
  727,413
  771,098
  816,632
  864,116
  913,657
  965,368
  1,019,369
  1,075,785
  1,134,749
  1,196,398
  1,260,880
  1,328,345
  1,398,954
Variable operating expenses, $m
 
  185,555
  205,599
  226,638
  248,662
  271,667
  295,655
  320,638
  346,631
  373,658
  401,750
  427,117
  457,453
  488,982
  521,759
  555,844
  591,304
  628,211
  666,641
  706,677
  748,406
  791,923
  837,325
  884,716
  934,205
  985,908
  1,039,945
  1,096,445
  1,155,539
  1,217,367
  1,282,077
Fixed operating expenses, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  167,831
  185,555
  205,599
  226,638
  248,662
  271,667
  295,655
  320,638
  346,631
  373,658
  401,750
  427,117
  457,453
  488,982
  521,759
  555,844
  591,304
  628,211
  666,641
  706,677
  748,406
  791,923
  837,325
  884,716
  934,205
  985,908
  1,039,945
  1,096,445
  1,155,539
  1,217,367
  1,282,077
Operating income, $m
  9,695
  12,742
  14,569
  16,487
  18,495
  20,592
  22,779
  25,056
  27,426
  29,890
  32,451
  38,937
  41,702
  44,576
  47,564
  50,672
  53,904
  57,269
  60,772
  64,422
  68,226
  72,193
  76,332
  80,652
  85,164
  89,877
  94,803
  99,954
  105,341
  110,977
  116,876
EBITDA, $m
  9,695
  18,669
  20,728
  22,889
  25,152
  27,515
  29,979
  32,546
  35,216
  37,992
  40,878
  43,877
  46,993
  50,232
  53,599
  57,101
  60,744
  64,535
  68,483
  72,596
  76,882
  81,353
  86,017
  90,885
  95,969
  101,280
  106,832
  112,636
  118,706
  125,058
  131,705
Interest expense (income), $m
  -1,140
  897
  1,124
  1,364
  1,616
  1,880
  2,155
  2,443
  2,742
  3,053
  3,377
  3,714
  4,063
  4,427
  4,804
  5,197
  5,605
  6,030
  6,472
  6,933
  7,412
  7,912
  8,434
  8,977
  9,545
  10,138
  10,757
  11,405
  12,082
  12,790
  13,530
Earnings before tax, $m
  8,637
  11,845
  13,446
  15,123
  16,879
  18,712
  20,624
  22,614
  24,684
  26,837
  29,074
  35,223
  37,639
  40,150
  42,760
  45,475
  48,299
  51,239
  54,300
  57,489
  60,814
  64,281
  67,898
  71,675
  75,619
  79,739
  84,046
  88,549
  93,259
  98,188
  103,346
Tax expense, $m
  3,317
  3,198
  3,630
  4,083
  4,557
  5,052
  5,568
  6,106
  6,665
  7,246
  7,850
  9,510
  10,163
  10,840
  11,545
  12,278
  13,041
  13,834
  14,661
  15,522
  16,420
  17,356
  18,333
  19,352
  20,417
  21,530
  22,692
  23,908
  25,180
  26,511
  27,903
Net income, $m
  5,317
  8,647
  9,815
  11,040
  12,322
  13,660
  15,055
  16,508
  18,019
  19,591
  21,224
  25,713
  27,476
  29,309
  31,215
  33,197
  35,258
  37,404
  39,639
  41,967
  44,394
  46,925
  49,566
  52,323
  55,202
  58,209
  61,353
  64,641
  68,079
  71,677
  75,443

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  3,458
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  94,462
  101,638
  112,849
  124,616
  136,933
  149,799
  163,216
  177,188
  191,726
  206,842
  222,553
  238,880
  255,846
  273,480
  291,811
  310,874
  330,707
  351,348
  372,841
  395,232
  418,571
  442,909
  468,302
  494,807
  522,485
  551,402
  581,624
  613,223
  646,273
  680,853
  717,045
Adjusted assets (=assets-cash), $m
  91,004
  101,638
  112,849
  124,616
  136,933
  149,799
  163,216
  177,188
  191,726
  206,842
  222,553
  238,880
  255,846
  273,480
  291,811
  310,874
  330,707
  351,348
  372,841
  395,232
  418,571
  442,909
  468,302
  494,807
  522,485
  551,402
  581,624
  613,223
  646,273
  680,853
  717,045
Revenue / Adjusted assets
  1.951
  1.951
  1.951
  1.951
  1.951
  1.951
  1.951
  1.951
  1.951
  1.951
  1.951
  1.951
  1.951
  1.951
  1.951
  1.951
  1.951
  1.951
  1.951
  1.951
  1.951
  1.951
  1.951
  1.951
  1.951
  1.951
  1.951
  1.951
  1.951
  1.951
  1.951
Average production assets, $m
  18,782
  21,019
  23,338
  25,771
  28,319
  30,979
  33,754
  36,644
  39,650
  42,776
  46,025
  49,402
  52,911
  56,557
  60,348
  64,291
  68,392
  72,661
  77,106
  81,736
  86,563
  91,596
  96,848
  102,329
  108,053
  114,033
  120,283
  126,818
  133,653
  140,805
  148,289
Working capital, $m
  4,792
  3,569
  3,963
  4,376
  4,809
  5,261
  5,732
  6,222
  6,733
  7,264
  7,816
  8,389
  8,985
  9,604
  10,248
  10,917
  11,614
  12,339
  13,093
  13,880
  14,699
  15,554
  16,446
  17,377
  18,349
  19,364
  20,425
  21,535
  22,696
  23,910
  25,181
Total debt, $m
  27,531
  32,102
  38,963
  46,164
  53,702
  61,576
  69,787
  78,338
  87,235
  96,486
  106,101
  116,093
  126,477
  137,269
  148,487
  160,154
  172,291
  184,924
  198,078
  211,781
  226,065
  240,959
  256,500
  272,721
  289,660
  307,357
  325,853
  345,192
  365,418
  386,581
  408,730
Total liabilities, $m
  57,632
  62,203
  69,064
  76,265
  83,803
  91,677
  99,888
  108,439
  117,336
  126,587
  136,202
  146,194
  156,578
  167,370
  178,588
  190,255
  202,392
  215,025
  228,179
  241,882
  256,166
  271,060
  286,601
  302,822
  319,761
  337,458
  355,954
  375,293
  395,519
  416,682
  438,831
Total equity, $m
  36,830
  39,436
  43,785
  48,351
  53,130
  58,122
  63,328
  68,749
  74,390
  80,255
  86,350
  92,685
  99,268
  106,110
  113,223
  120,619
  128,314
  136,323
  144,662
  153,350
  162,406
  171,849
  181,701
  191,985
  202,724
  213,944
  225,670
  237,931
  250,754
  264,171
  278,213
Total liabilities and equity, $m
  94,462
  101,639
  112,849
  124,616
  136,933
  149,799
  163,216
  177,188
  191,726
  206,842
  222,552
  238,879
  255,846
  273,480
  291,811
  310,874
  330,706
  351,348
  372,841
  395,232
  418,572
  442,909
  468,302
  494,807
  522,485
  551,402
  581,624
  613,224
  646,273
  680,853
  717,044
Debt-to-equity ratio
  0.748
  0.810
  0.890
  0.950
  1.010
  1.060
  1.100
  1.140
  1.170
  1.200
  1.230
  1.250
  1.270
  1.290
  1.310
  1.330
  1.340
  1.360
  1.370
  1.380
  1.390
  1.400
  1.410
  1.420
  1.430
  1.440
  1.440
  1.450
  1.460
  1.460
  1.470
Adjusted equity ratio
  0.387
  0.388
  0.388
  0.388
  0.388
  0.388
  0.388
  0.388
  0.388
  0.388
  0.388
  0.388
  0.388
  0.388
  0.388
  0.388
  0.388
  0.388
  0.388
  0.388
  0.388
  0.388
  0.388
  0.388
  0.388
  0.388
  0.388
  0.388
  0.388
  0.388
  0.388

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  5,317
  8,647
  9,815
  11,040
  12,322
  13,660
  15,055
  16,508
  18,019
  19,591
  21,224
  25,713
  27,476
  29,309
  31,215
  33,197
  35,258
  37,404
  39,639
  41,967
  44,394
  46,925
  49,566
  52,323
  55,202
  58,209
  61,353
  64,641
  68,079
  71,677
  75,443
Depreciation, amort., depletion, $m
  0
  5,927
  6,159
  6,402
  6,657
  6,923
  7,200
  7,489
  7,790
  8,103
  8,427
  4,940
  5,291
  5,656
  6,035
  6,429
  6,839
  7,266
  7,711
  8,174
  8,656
  9,160
  9,685
  10,233
  10,805
  11,403
  12,028
  12,682
  13,365
  14,080
  14,829
Funds from operations, $m
  -5,461
  14,574
  15,974
  17,442
  18,979
  20,583
  22,256
  23,997
  25,809
  27,693
  29,651
  30,653
  32,768
  34,965
  37,250
  39,626
  42,097
  44,670
  47,349
  50,141
  53,050
  56,085
  59,251
  62,555
  66,007
  69,613
  73,382
  77,323
  81,445
  85,757
  90,272
Change in working capital, $m
  -15,530
  374
  394
  413
  433
  452
  471
  491
  511
  531
  552
  573
  596
  619
  644
  669
  696
  725
  755
  786
  820
  855
  892
  931
  972
  1,015
  1,061
  1,110
  1,161
  1,214
  1,271
Cash from operations, $m
  10,069
  19,104
  15,580
  17,029
  18,546
  20,131
  21,784
  23,507
  25,299
  27,162
  29,099
  30,080
  32,172
  34,346
  36,606
  38,956
  41,401
  43,945
  46,595
  49,354
  52,231
  55,230
  58,359
  61,625
  65,035
  68,597
  72,320
  76,213
  80,284
  84,543
  89,001
Maintenance CAPEX, $m
  0
  -1,878
  -2,102
  -2,334
  -2,577
  -2,832
  -3,098
  -3,375
  -3,664
  -3,965
  -4,278
  -4,603
  -4,940
  -5,291
  -5,656
  -6,035
  -6,429
  -6,839
  -7,266
  -7,711
  -8,174
  -8,656
  -9,160
  -9,685
  -10,233
  -10,805
  -11,403
  -12,028
  -12,682
  -13,365
  -14,080
New CAPEX, $m
  -2,224
  -2,237
  -2,318
  -2,433
  -2,547
  -2,661
  -2,775
  -2,890
  -3,006
  -3,126
  -3,249
  -3,376
  -3,509
  -3,647
  -3,791
  -3,942
  -4,101
  -4,269
  -4,445
  -4,631
  -4,827
  -5,033
  -5,251
  -5,481
  -5,724
  -5,980
  -6,250
  -6,535
  -6,835
  -7,151
  -7,485
Cash from investing activities, $m
  -2,470
  -4,115
  -4,420
  -4,767
  -5,124
  -5,493
  -5,873
  -6,265
  -6,670
  -7,091
  -7,527
  -7,979
  -8,449
  -8,938
  -9,447
  -9,977
  -10,530
  -11,108
  -11,711
  -12,342
  -13,001
  -13,689
  -14,411
  -15,166
  -15,957
  -16,785
  -17,653
  -18,563
  -19,517
  -20,516
  -21,565
Free cash flow, $m
  7,599
  14,988
  11,160
  12,262
  13,422
  14,638
  15,912
  17,242
  18,628
  20,071
  21,573
  22,101
  23,723
  25,408
  27,159
  28,979
  30,870
  32,837
  34,884
  37,013
  39,230
  41,540
  43,948
  46,459
  49,078
  51,812
  54,667
  57,650
  60,767
  64,026
  67,436
Issuance/(repayment) of debt, $m
  -614
  6,487
  6,861
  7,201
  7,538
  7,874
  8,211
  8,551
  8,897
  9,251
  9,615
  9,992
  10,383
  10,792
  11,219
  11,667
  12,137
  12,632
  13,154
  13,704
  14,283
  14,895
  15,540
  16,221
  16,939
  17,697
  18,496
  19,339
  20,227
  21,163
  22,149
Issuance/(repurchase) of shares, $m
  -4,237
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  -4,849
  6,487
  6,861
  7,201
  7,538
  7,874
  8,211
  8,551
  8,897
  9,251
  9,615
  9,992
  10,383
  10,792
  11,219
  11,667
  12,137
  12,632
  13,154
  13,704
  14,283
  14,895
  15,540
  16,221
  16,939
  17,697
  18,496
  19,339
  20,227
  21,163
  22,149
Total cash flow (excl. dividends), $m
  2,752
  21,475
  18,021
  19,463
  20,960
  22,512
  24,123
  25,793
  27,525
  29,322
  31,188
  32,093
  34,106
  36,200
  38,378
  40,646
  43,008
  45,470
  48,037
  50,717
  53,514
  56,435
  59,488
  62,680
  66,017
  69,509
  73,163
  76,988
  80,994
  85,189
  89,585
Retained Cash Flow (-), $m
  366
  -4,148
  -4,350
  -4,566
  -4,779
  -4,992
  -5,206
  -5,421
  -5,641
  -5,865
  -6,096
  -6,335
  -6,583
  -6,842
  -7,113
  -7,397
  -7,695
  -8,009
  -8,339
  -8,688
  -9,055
  -9,443
  -9,852
  -10,284
  -10,739
  -11,220
  -11,726
  -12,260
  -12,824
  -13,417
  -14,042
Prev. year cash balance distribution, $m
 
  1,542
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  18,869
  13,671
  14,897
  16,181
  17,520
  18,917
  20,371
  21,884
  23,457
  25,092
  25,758
  27,523
  29,358
  31,265
  33,249
  35,313
  37,461
  39,698
  42,029
  44,458
  46,992
  49,636
  52,396
  55,278
  58,289
  61,437
  64,728
  68,170
  71,772
  75,542
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  18,092
  12,515
  12,965
  13,323
  13,581
  13,729
  13,763
  13,678
  13,475
  13,155
  12,232
  11,745
  11,162
  10,496
  9,761
  8,974
  8,151
  7,311
  6,471
  5,649
  4,861
  4,118
  3,434
  2,815
  2,268
  1,792
  1,389
  1,055
  783
  569
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

CVS Health Corporation, together with its subsidiaries, provides integrated pharmacy health care services. It operates through Pharmacy Services and Retail/LTC segments. The Pharmacy Services segment offers pharmacy benefit management solutions, such as plan design and administration, formulary management, Medicare Part D services, mail order, specialty pharmacy and infusion services, retail pharmacy network management services, prescription management systems, clinical services, disease management programs, and medical pharmacy management services. This segment serves employers, insurance companies, unions, government employee groups, health plans, Medicare Part D plans, managed Medicaid plans, plans offered on public and private exchanges, other sponsors of health benefit plans, and individuals under the CVS Caremark Pharmacy Services, Caremark, CVS Caremark, CarePlus CVS Pharmacy, CVS Specialty, Accordant, SilverScript, NovoLogix, Coram, Navarro Health Services, and ACS Pharmacy names. As of December 31, 2016, it had 23 retail specialty pharmacy stores, 13 specialty mail order pharmacies and 4 mail order dispensing pharmacies, and 84 branches for infusion and enteral services. The Retail/LTC segment sells prescription drugs, over-the-counter drugs, beauty products and cosmetics, personal care products, convenience foods, seasonal merchandise, and greeting cards, as well as offers photo finishing services. It has 9,709 retail stores in 49 states, the District of Columbia, Puerto Rico, and Brazil primarily under the CVS Pharmacy, CVS, CVS Pharmacy y más, Longs Drugs, Navarro Discount Pharmacy, and Drogaria Onofre names; online retail pharmacy Websites; and 38 onsite pharmacy stores, long-term care pharmacy operations, and retail health care clinics. The company was formerly known as CVS Caremark Corporation and changed its name to CVS Health Corporation in September 2014. CVS Health Corporation was founded in 1892 and is headquartered in Woonsocket, Rhode Island.

FINANCIAL RATIOS  of  CVS Health (CVS)

Valuation Ratios
P/E Ratio 16.5
Price to Sales 0.5
Price to Book 2.4
Price to Tangible Book
Price to Cash Flow 8.7
Price to Free Cash Flow 11.1
Growth Rates
Sales Growth Rate 15.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -6%
Cap. Spend. - 3 Yr. Gr. Rate 2.3%
Financial Strength
Quick Ratio 2
Current Ratio 0
LT Debt to Equity 69.5%
Total Debt to Equity 74.8%
Interest Coverage -7
Management Effectiveness
Return On Assets 4.9%
Ret/ On Assets - 3 Yr. Avg. 5.5%
Return On Total Capital 8.2%
Ret/ On T. Cap. - 3 Yr. Avg. 8.8%
Return On Equity 14.4%
Return On Equity - 3 Yr. Avg. 13.5%
Asset Turnover 1.9
Profitability Ratios
Gross Margin 16.3%
Gross Margin - 3 Yr. Avg. 17.3%
EBITDA Margin 4.2%
EBITDA Margin - 3 Yr. Avg. 4.8%
Operating Margin 5.5%
Oper. Margin - 3 Yr. Avg. 5.9%
Pre-Tax Margin 4.9%
Pre-Tax Margin - 3 Yr. Avg. 5.3%
Net Profit Margin 3%
Net Profit Margin - 3 Yr. Avg. 3.2%
Effective Tax Rate 38.4%
Eff/ Tax Rate - 3 Yr. Avg. 39.1%
Payout Ratio 34.6%

CVS stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CVS stock intrinsic value calculation we used $177526 million for the last fiscal year's total revenue generated by CVS Health. The default revenue input number comes from 2016 income statement of CVS Health. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our CVS stock valuation model: a) initial revenue growth rate of 11.7% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for CVS is calculated based on our internal credit rating of CVS Health, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of CVS Health.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of CVS stock the variable cost ratio is equal to 93.8%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for CVS stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 3.5% for CVS Health.

Corporate tax rate of 27% is the nominal tax rate for CVS Health. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the CVS stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for CVS are equal to 10.6%.

Life of production assets of 10 years is the average useful life of capital assets used in CVS Health operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for CVS is equal to 1.8%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $36830 million for CVS Health - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 1021.15 million for CVS Health is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of CVS Health at the current share price and the inputted number of shares is $84.2 billion.


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Stock chart of CVS Financial statements of CVS
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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