Intrinsic value of CVS Health - CVS

Previous Close

$70.80

  Intrinsic Value

$305.66

stock screener

  Rating & Target

str. buy

+332%

Previous close

$70.80

 
Intrinsic value

$305.66

 
Up/down potential

+332%

 
Rating

str. buy

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 72.0

 

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
  15.80
  14.72
  13.75
  12.87
  12.09
  11.38
  10.74
  10.17
  9.65
  9.18
  8.77
  8.39
  8.05
  7.75
  7.47
  7.22
  7.00
  6.80
  6.62
  6.46
  6.31
  6.18
  6.06
  5.96
  5.86
  5.78
  5.70
  5.63
  5.57
  5.51
Revenue, $m
  177,526
  205,575
  235,836
  268,258
  302,792
  339,387
  378,000
  418,596
  461,148
  505,645
  552,084
  600,478
  650,853
  703,248
  757,716
  814,323
  873,147
  934,278
  997,820
  1,063,885
  1,132,601
  1,204,102
  1,278,537
  1,356,061
  1,436,845
  1,521,065
  1,608,911
  1,700,584
  1,796,293
  1,896,261
  2,000,720
Variable operating expenses, $m
 
  192,225
  219,958
  249,672
  281,320
  314,858
  350,245
  387,449
  426,446
  467,225
  509,785
  550,311
  596,477
  644,495
  694,413
  746,290
  800,199
  856,223
  914,456
  975,002
  1,037,977
  1,103,505
  1,171,721
  1,242,768
  1,316,803
  1,393,987
  1,474,494
  1,558,508
  1,646,221
  1,737,837
  1,833,569
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
  192,225
  219,958
  249,672
  281,320
  314,858
  350,245
  387,449
  426,446
  467,225
  509,785
  550,311
  596,477
  644,495
  694,413
  746,290
  800,199
  856,223
  914,456
  975,002
  1,037,977
  1,103,505
  1,171,721
  1,242,768
  1,316,803
  1,393,987
  1,474,494
  1,558,508
  1,646,221
  1,737,837
  1,833,569
Operating income, $m
  9,695
  13,350
  15,878
  18,587
  21,472
  24,529
  27,755
  31,147
  34,702
  38,419
  42,299
  50,167
  54,376
  58,753
  63,304
  68,033
  72,948
  78,055
  83,363
  88,883
  94,624
  100,597
  106,816
  113,293
  120,042
  127,078
  134,417
  142,076
  150,072
  158,424
  167,151
EBITDA, $m
  9,695
  19,354
  22,203
  25,255
  28,507
  31,952
  35,587
  39,409
  43,415
  47,604
  51,976
  56,532
  61,275
  66,208
  71,336
  76,665
  82,203
  87,958
  93,940
  100,160
  106,629
  113,361
  120,369
  127,667
  135,273
  143,202
  151,472
  160,102
  169,113
  178,525
  188,359
Interest expense (income), $m
  -1,140
  897
  1,203
  1,536
  1,892
  2,271
  2,673
  3,097
  3,542
  4,009
  4,498
  5,008
  5,539
  6,092
  6,667
  7,265
  7,887
  8,533
  9,204
  9,902
  10,627
  11,381
  12,166
  12,983
  13,835
  14,722
  15,646
  16,611
  17,617
  18,668
  19,765
Earnings before tax, $m
  8,637
  12,453
  14,675
  17,051
  19,580
  22,259
  25,083
  28,050
  31,160
  34,410
  37,801
  45,160
  48,837
  52,661
  56,636
  60,768
  65,061
  69,522
  74,160
  78,981
  83,997
  89,216
  94,650
  100,309
  106,207
  112,357
  118,771
  125,466
  132,455
  139,756
  147,386
Tax expense, $m
  3,317
  3,362
  3,962
  4,604
  5,287
  6,010
  6,772
  7,574
  8,413
  9,291
  10,206
  12,193
  13,186
  14,219
  15,292
  16,407
  17,566
  18,771
  20,023
  21,325
  22,679
  24,088
  25,555
  27,084
  28,676
  30,336
  32,068
  33,876
  35,763
  37,734
  39,794
Net income, $m
  5,317
  9,091
  10,713
  12,447
  14,294
  16,249
  18,310
  20,477
  22,747
  25,119
  27,595
  32,966
  35,651
  38,443
  41,345
  44,360
  47,494
  50,751
  54,136
  57,656
  61,318
  65,128
  69,094
  73,226
  77,531
  82,020
  86,703
  91,590
  96,692
  102,022
  107,592

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
  105,369
  120,879
  137,498
  155,198
  173,955
  193,747
  214,554
  236,365
  259,172
  282,975
  307,780
  333,600
  360,455
  388,373
  417,388
  447,538
  478,871
  511,440
  545,303
  580,523
  617,172
  655,324
  695,060
  736,466
  779,633
  824,660
  871,647
  920,704
  971,943
  1,025,484
Adjusted assets (=assets-cash), $m
  91,004
  105,369
  120,879
  137,498
  155,198
  173,955
  193,747
  214,554
  236,365
  259,172
  282,975
  307,780
  333,600
  360,455
  388,373
  417,388
  447,538
  478,871
  511,440
  545,303
  580,523
  617,172
  655,324
  695,060
  736,466
  779,633
  824,660
  871,647
  920,704
  971,943
  1,025,484
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
  21,791
  24,999
  28,435
  32,096
  35,975
  40,068
  44,371
  48,882
  53,598
  58,521
  63,651
  68,990
  74,544
  80,318
  86,318
  92,554
  99,033
  105,769
  112,772
  120,056
  127,635
  135,525
  143,743
  152,306
  161,233
  170,545
  180,262
  190,407
  201,004
  212,076
Working capital, $m
  4,792
  3,700
  4,245
  4,829
  5,450
  6,109
  6,804
  7,535
  8,301
  9,102
  9,938
  10,809
  11,715
  12,658
  13,639
  14,658
  15,717
  16,817
  17,961
  19,150
  20,387
  21,674
  23,014
  24,409
  25,863
  27,379
  28,960
  30,611
  32,333
  34,133
  36,013
Total debt, $m
  27,531
  34,385
  43,877
  54,048
  64,880
  76,360
  88,472
  101,206
  114,554
  128,512
  143,080
  158,260
  174,062
  190,498
  207,583
  225,340
  243,792
  262,968
  282,900
  303,624
  325,179
  347,608
  370,957
  395,276
  420,616
  447,035
  474,591
  503,347
  533,370
  564,728
  597,495
Total liabilities, $m
  57,632
  64,486
  73,978
  84,149
  94,981
  106,461
  118,573
  131,307
  144,655
  158,613
  173,181
  188,361
  204,163
  220,599
  237,684
  255,441
  273,893
  293,069
  313,001
  333,725
  355,280
  377,709
  401,058
  425,377
  450,717
  477,136
  504,692
  533,448
  563,471
  594,829
  627,596
Total equity, $m
  36,830
  40,883
  46,901
  53,349
  60,217
  67,495
  75,174
  83,247
  91,710
  100,559
  109,794
  119,418
  129,437
  139,857
  150,689
  161,946
  173,645
  185,802
  198,439
  211,577
  225,243
  239,463
  254,266
  269,683
  285,749
  302,498
  319,968
  338,199
  357,233
  377,114
  397,888
Total liabilities and equity, $m
  94,462
  105,369
  120,879
  137,498
  155,198
  173,956
  193,747
  214,554
  236,365
  259,172
  282,975
  307,779
  333,600
  360,456
  388,373
  417,387
  447,538
  478,871
  511,440
  545,302
  580,523
  617,172
  655,324
  695,060
  736,466
  779,634
  824,660
  871,647
  920,704
  971,943
  1,025,484
Debt-to-equity ratio
  0.748
  0.840
  0.940
  1.010
  1.080
  1.130
  1.180
  1.220
  1.250
  1.280
  1.300
  1.330
  1.340
  1.360
  1.380
  1.390
  1.400
  1.420
  1.430
  1.440
  1.440
  1.450
  1.460
  1.470
  1.470
  1.480
  1.480
  1.490
  1.490
  1.500
  1.500
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
  9,091
  10,713
  12,447
  14,294
  16,249
  18,310
  20,477
  22,747
  25,119
  27,595
  32,966
  35,651
  38,443
  41,345
  44,360
  47,494
  50,751
  54,136
  57,656
  61,318
  65,128
  69,094
  73,226
  77,531
  82,020
  86,703
  91,590
  96,692
  102,022
  107,592
Depreciation, amort., depletion, $m
  0
  6,004
  6,325
  6,668
  7,034
  7,422
  7,832
  8,262
  8,713
  9,185
  9,677
  6,365
  6,899
  7,454
  8,032
  8,632
  9,255
  9,903
  10,577
  11,277
  12,006
  12,763
  13,552
  14,374
  15,231
  16,123
  17,054
  18,026
  19,041
  20,100
  21,208
Funds from operations, $m
  -5,461
  15,095
  17,037
  19,116
  21,328
  23,671
  26,142
  28,739
  31,460
  34,304
  37,272
  39,332
  42,550
  45,897
  49,376
  52,992
  56,750
  60,654
  64,713
  68,934
  73,323
  77,891
  82,647
  87,600
  92,762
  98,144
  103,757
  109,616
  115,733
  122,122
  128,799
Change in working capital, $m
  -15,530
  505
  545
  584
  622
  659
  695
  731
  766
  801
  836
  871
  907
  943
  980
  1,019
  1,059
  1,100
  1,144
  1,189
  1,237
  1,287
  1,340
  1,395
  1,454
  1,516
  1,581
  1,650
  1,723
  1,799
  1,880
Cash from operations, $m
  10,069
  14,590
  16,493
  18,532
  20,707
  23,012
  25,447
  28,008
  30,694
  33,503
  36,436
  38,460
  41,643
  44,954
  48,396
  51,973
  55,691
  59,554
  63,570
  67,744
  72,086
  76,604
  81,307
  86,205
  91,308
  96,628
  102,176
  107,966
  114,010
  120,323
  126,919
Maintenance CAPEX, $m
  0
  -1,878
  -2,179
  -2,500
  -2,844
  -3,210
  -3,598
  -4,007
  -4,437
  -4,888
  -5,360
  -5,852
  -6,365
  -6,899
  -7,454
  -8,032
  -8,632
  -9,255
  -9,903
  -10,577
  -11,277
  -12,006
  -12,763
  -13,552
  -14,374
  -15,231
  -16,123
  -17,054
  -18,026
  -19,041
  -20,100
New CAPEX, $m
  -2,224
  -3,009
  -3,208
  -3,437
  -3,661
  -3,879
  -4,093
  -4,303
  -4,511
  -4,717
  -4,923
  -5,130
  -5,340
  -5,554
  -5,774
  -6,000
  -6,235
  -6,480
  -6,735
  -7,003
  -7,284
  -7,579
  -7,890
  -8,218
  -8,563
  -8,927
  -9,312
  -9,717
  -10,145
  -10,597
  -11,073
Cash from investing activities, $m
  -2,470
  -4,887
  -5,387
  -5,937
  -6,505
  -7,089
  -7,691
  -8,310
  -8,948
  -9,605
  -10,283
  -10,982
  -11,705
  -12,453
  -13,228
  -14,032
  -14,867
  -15,735
  -16,638
  -17,580
  -18,561
  -19,585
  -20,653
  -21,770
  -22,937
  -24,158
  -25,435
  -26,771
  -28,171
  -29,638
  -31,173
Free cash flow, $m
  7,599
  9,703
  11,106
  12,596
  14,202
  15,924
  17,757
  19,698
  21,746
  23,898
  26,154
  27,479
  29,938
  32,501
  35,168
  37,941
  40,824
  43,819
  46,931
  50,165
  53,525
  57,020
  60,653
  64,435
  68,371
  72,470
  76,741
  81,194
  85,839
  90,686
  95,746
Issuance/(repayment) of debt, $m
  -614
  8,770
  9,492
  10,171
  10,833
  11,479
  12,112
  12,734
  13,348
  13,958
  14,567
  15,181
  15,802
  16,436
  17,086
  17,757
  18,452
  19,176
  19,932
  20,724
  21,555
  22,429
  23,349
  24,318
  25,341
  26,419
  27,556
  28,756
  30,023
  31,358
  32,767
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
  8,770
  9,492
  10,171
  10,833
  11,479
  12,112
  12,734
  13,348
  13,958
  14,567
  15,181
  15,802
  16,436
  17,086
  17,757
  18,452
  19,176
  19,932
  20,724
  21,555
  22,429
  23,349
  24,318
  25,341
  26,419
  27,556
  28,756
  30,023
  31,358
  32,767
Total cash flow (excl. dividends), $m
  2,752
  18,473
  20,598
  22,766
  25,035
  27,403
  29,869
  32,432
  35,094
  37,856
  40,721
  42,659
  45,740
  48,937
  52,254
  55,698
  59,276
  62,995
  66,863
  70,888
  75,080
  79,448
  84,002
  88,753
  93,711
  98,888
  104,297
  109,951
  115,861
  122,044
  128,513
Retained Cash Flow (-), $m
  366
  -5,595
  -6,018
  -6,448
  -6,868
  -7,278
  -7,679
  -8,073
  -8,463
  -8,849
  -9,235
  -9,624
  -10,018
  -10,420
  -10,832
  -11,258
  -11,698
  -12,157
  -12,637
  -13,139
  -13,666
  -14,220
  -14,803
  -15,418
  -16,066
  -16,749
  -17,470
  -18,231
  -19,034
  -19,881
  -20,774
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
 
  14,420
  14,580
  16,318
  18,167
  20,125
  22,190
  24,359
  26,632
  29,007
  31,485
  33,035
  35,722
  38,517
  41,422
  44,440
  47,577
  50,837
  54,226
  57,750
  61,415
  65,229
  69,200
  73,335
  77,646
  82,139
  86,827
  91,719
  96,828
  102,163
  107,739
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
 
  13,825
  13,348
  14,201
  14,959
  15,600
  16,104
  16,457
  16,645
  16,663
  16,507
  15,688
  15,244
  14,645
  13,906
  13,047
  12,090
  11,061
  9,986
  8,892
  7,804
  6,747
  5,742
  4,806
  3,955
  3,195
  2,533
  1,969
  1,498
  1,115
  811
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, is an integrated pharmacy healthcare company. The Company provides pharmacy care for the senior community through Omnicare, Inc. (Omnicare) and Omnicare's long-term care (LTC) operations, which include distribution of pharmaceuticals, related pharmacy consulting and other ancillary services to chronic care facilities and other care settings. It operates through three segments: Pharmacy Services, Retail/LTC and Corporate. The Pharmacy Services Segment provides a range of pharmacy benefit management (PBM) solutions to its clients. As of December 31, 2016, the Retail/LTC Segment included 9,709 retail locations (of which 7,980 were its stores that operated a pharmacy and 1,674 were its pharmacies located within Target Corporation (Target) stores), its online retail pharmacy Websites, CVS.com, Navarro.com and Onofre.com.br, 38 onsite pharmacy stores, its long-term care pharmacy operations and its retail healthcare clinics.

FINANCIAL RATIOS  of  CVS Health (CVS)

Valuation Ratios
P/E Ratio 14.1
Price to Sales 0.4
Price to Book 2
Price to Tangible Book
Price to Cash Flow 7.5
Price to Free Cash Flow 9.6
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 15.8% 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 1016.6 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 $72.0 billion.

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COMPANY NEWS

▶ Express Scripts Guides High As Amazon Lurks, CVS-Aetna Deal Weighs   [Dec-14-17 04:04PM  Investor's Business Daily]
▶ PBM Industry Shows Strength: 3 Stocks in Focus   [Dec-13-17 05:33PM  Zacks]
▶ Hospitals Are Merging to Face Off With Insurers   [Dec-11-17 01:18PM  Bloomberg]
▶ Ascension, Providence St. Joseph in talks for merger   [10:49AM  Yahoo Finance Video]
▶ BUZZ-U.S. stocks weekly: Still in business   [Dec-08-17 04:32PM  Reuters]
▶ Will CVS Get the Chance to Buy Aetna?   [Dec-07-17 09:25PM  Motley Fool]
▶ [$$] Goldman, Barclays Bust Into Jamie Dimons Game   [Dec-06-17 11:56PM  The Wall Street Journal]
▶ MARKET FOOLERY // 12-04-2017   [04:35PM  Motley Fool]
▶ [$$] Goldman, Barclays Bust Into Jamie Dimon's Game   [03:18PM  The Wall Street Journal]
▶ CVS Boss Larry Merlos Path From Corner Pharmacy to C-Suite   [12:39AM  The Wall Street Journal]
▶ How an Aetna/CVS behemoth would stack up against UnitedHealth   [11:00AM  American City Business Journals]
▶ Company News For Dec 5, 2017   [10:15AM  Zacks]
▶ [$$] CVS-Aetna Is More Tortoise Than Hare   [12:05AM  The Wall Street Journal]
▶ What the CVS-Aetna deal means for you   [05:50PM  MarketWatch]
▶ Business Highlights   [05:46PM  Associated Press]
▶ What Happened in the Stock Market Today   [05:06PM  Motley Fool]
▶ Your Consumer Sector Insights from Last Week   [04:23PM  Market Realist]
▶ Why CVS Health Is Sinking Today   [03:54PM  Motley Fool]
▶ Wall Street Opens Strong   [02:56PM  GuruFocus.com]
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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