Intrinsic value of CVS Health - CVS

Previous Close

$77.66

  Intrinsic Value

$157.68

stock screener

  Rating & Target

str. buy

+103%

  Value-price divergence*

0%

Previous close

$77.66

 
Intrinsic value

$157.68

 
Up/down potential

+103%

 
Rating

str. buy

 
Value-price divergence*

0%

*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 78.8

 

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
  3.00
  3.20
  3.38
  3.54
  3.69
  3.82
  3.94
  4.04
  4.14
  4.23
  4.30
  4.37
  4.44
  4.49
  4.54
  4.59
  4.63
  4.67
  4.70
  4.73
  4.76
  4.78
  4.80
  4.82
  4.84
  4.86
  4.87
  4.88
  4.90
  4.91
Revenue, $m
  177,526
  182,852
  188,703
  195,081
  201,991
  209,440
  217,439
  225,999
  235,137
  244,870
  255,216
  266,197
  277,836
  290,159
  303,192
  316,964
  331,507
  346,854
  363,039
  380,102
  398,080
  417,016
  436,954
  457,941
  480,026
  503,262
  527,702
  553,406
  580,432
  608,846
  638,715
Variable operating expenses, $m
 
  171,400
  176,763
  182,608
  188,940
  195,767
  203,097
  210,943
  219,318
  228,237
  237,719
  243,958
  254,624
  265,917
  277,861
  290,483
  303,811
  317,876
  332,709
  348,346
  364,822
  382,176
  400,448
  419,682
  439,922
  461,217
  483,615
  507,171
  531,940
  557,980
  585,353
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
  171,400
  176,763
  182,608
  188,940
  195,767
  203,097
  210,943
  219,318
  228,237
  237,719
  243,958
  254,624
  265,917
  277,861
  290,483
  303,811
  317,876
  332,709
  348,346
  364,822
  382,176
  400,448
  419,682
  439,922
  461,217
  483,615
  507,171
  531,940
  557,980
  585,353
Operating income, $m
  9,695
  11,452
  11,940
  12,473
  13,051
  13,673
  14,341
  15,056
  15,820
  16,633
  17,497
  22,240
  23,212
  24,241
  25,330
  26,481
  27,696
  28,978
  30,330
  31,756
  33,258
  34,840
  36,506
  38,259
  40,104
  42,045
  44,087
  46,235
  48,493
  50,866
  53,362
EBITDA, $m
  9,695
  17,215
  17,766
  18,366
  19,017
  19,718
  20,471
  21,277
  22,137
  23,053
  24,027
  25,061
  26,157
  27,317
  28,544
  29,841
  31,210
  32,655
  34,179
  35,785
  37,477
  39,260
  41,137
  43,113
  45,192
  47,380
  49,681
  52,101
  54,645
  57,320
  60,132
Interest expense (income), $m
  -1,140
  897
  954
  1,018
  1,088
  1,164
  1,246
  1,334
  1,428
  1,528
  1,635
  1,748
  1,869
  1,997
  2,132
  2,275
  2,426
  2,586
  2,755
  2,932
  3,120
  3,317
  3,525
  3,744
  3,974
  4,217
  4,472
  4,740
  5,022
  5,319
  5,631
Earnings before tax, $m
  8,637
  10,555
  10,986
  11,455
  11,962
  12,509
  13,095
  13,723
  14,392
  15,105
  15,862
  20,491
  21,343
  22,245
  23,198
  24,206
  25,270
  26,392
  27,576
  28,824
  30,138
  31,523
  32,981
  34,515
  36,130
  37,829
  39,615
  41,494
  43,470
  45,547
  47,731
Tax expense, $m
  3,317
  2,850
  2,966
  3,093
  3,230
  3,377
  3,536
  3,705
  3,886
  4,078
  4,283
  5,533
  5,763
  6,006
  6,264
  6,536
  6,823
  7,126
  7,445
  7,782
  8,137
  8,511
  8,905
  9,319
  9,755
  10,214
  10,696
  11,204
  11,737
  12,298
  12,887
Net income, $m
  5,317
  7,705
  8,020
  8,362
  8,732
  9,131
  9,560
  10,018
  10,506
  11,027
  11,580
  14,959
  15,580
  16,239
  16,935
  17,670
  18,447
  19,266
  20,130
  21,041
  22,001
  23,012
  24,076
  25,196
  26,375
  27,615
  28,919
  30,291
  31,733
  33,250
  34,844

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
  93,722
  96,721
  99,990
  103,532
  107,350
  111,450
  115,838
  120,521
  125,510
  130,813
  136,441
  142,407
  148,723
  155,403
  162,462
  169,916
  177,783
  186,079
  194,824
  204,039
  213,745
  223,964
  234,721
  246,041
  257,951
  270,478
  283,652
  297,505
  312,069
  327,378
Adjusted assets (=assets-cash), $m
  91,004
  93,722
  96,721
  99,990
  103,532
  107,350
  111,450
  115,838
  120,521
  125,510
  130,813
  136,441
  142,407
  148,723
  155,403
  162,462
  169,916
  177,783
  186,079
  194,824
  204,039
  213,745
  223,964
  234,721
  246,041
  257,951
  270,478
  283,652
  297,505
  312,069
  327,378
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
  19,382
  20,003
  20,679
  21,411
  22,201
  23,048
  23,956
  24,925
  25,956
  27,053
  28,217
  29,451
  30,757
  32,138
  33,598
  35,140
  36,766
  38,482
  40,291
  42,196
  44,204
  46,317
  48,542
  50,883
  53,346
  55,936
  58,661
  61,526
  64,538
  67,704
Working capital, $m
  4,792
  3,291
  3,397
  3,511
  3,636
  3,770
  3,914
  4,068
  4,232
  4,408
  4,594
  4,792
  5,001
  5,223
  5,457
  5,705
  5,967
  6,243
  6,535
  6,842
  7,165
  7,506
  7,865
  8,243
  8,640
  9,059
  9,499
  9,961
  10,448
  10,959
  11,497
Total debt, $m
  27,531
  27,257
  29,092
  31,093
  33,261
  35,597
  38,106
  40,792
  43,658
  46,711
  49,957
  53,401
  57,052
  60,918
  65,006
  69,326
  73,888
  78,702
  83,779
  89,131
  94,771
  100,711
  106,965
  113,548
  120,476
  127,765
  135,431
  143,494
  151,972
  160,885
  170,255
Total liabilities, $m
  57,632
  57,358
  59,193
  61,194
  63,362
  65,698
  68,207
  70,893
  73,759
  76,812
  80,058
  83,502
  87,153
  91,019
  95,107
  99,427
  103,989
  108,803
  113,880
  119,232
  124,872
  130,812
  137,066
  143,649
  150,577
  157,866
  165,532
  173,595
  182,073
  190,986
  200,356
Total equity, $m
  36,830
  36,364
  37,528
  38,796
  40,170
  41,652
  43,243
  44,945
  46,762
  48,698
  50,755
  52,939
  55,254
  57,705
  60,296
  63,035
  65,928
  68,980
  72,199
  75,592
  79,167
  82,933
  86,898
  91,072
  95,464
  100,085
  104,945
  110,057
  115,432
  121,083
  127,023
Total liabilities and equity, $m
  94,462
  93,722
  96,721
  99,990
  103,532
  107,350
  111,450
  115,838
  120,521
  125,510
  130,813
  136,441
  142,407
  148,724
  155,403
  162,462
  169,917
  177,783
  186,079
  194,824
  204,039
  213,745
  223,964
  234,721
  246,041
  257,951
  270,477
  283,652
  297,505
  312,069
  327,379
Debt-to-equity ratio
  0.748
  0.750
  0.780
  0.800
  0.830
  0.850
  0.880
  0.910
  0.930
  0.960
  0.980
  1.010
  1.030
  1.060
  1.080
  1.100
  1.120
  1.140
  1.160
  1.180
  1.200
  1.210
  1.230
  1.250
  1.260
  1.280
  1.290
  1.300
  1.320
  1.330
  1.340
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
  7,705
  8,020
  8,362
  8,732
  9,131
  9,560
  10,018
  10,506
  11,027
  11,580
  14,959
  15,580
  16,239
  16,935
  17,670
  18,447
  19,266
  20,130
  21,041
  22,001
  23,012
  24,076
  25,196
  26,375
  27,615
  28,919
  30,291
  31,733
  33,250
  34,844
Depreciation, amort., depletion, $m
  0
  5,763
  5,825
  5,893
  5,966
  6,045
  6,130
  6,220
  6,317
  6,421
  6,530
  2,822
  2,945
  3,076
  3,214
  3,360
  3,514
  3,677
  3,848
  4,029
  4,220
  4,420
  4,632
  4,854
  5,088
  5,335
  5,594
  5,866
  6,153
  6,454
  6,770
Funds from operations, $m
  -5,461
  13,468
  13,845
  14,255
  14,698
  15,176
  15,689
  16,238
  16,824
  17,447
  18,110
  17,780
  18,525
  19,314
  20,149
  21,030
  21,961
  22,943
  23,979
  25,070
  26,221
  27,432
  28,708
  30,050
  31,463
  32,949
  34,513
  36,157
  37,886
  39,703
  41,614
Change in working capital, $m
  -15,530
  96
  105
  115
  124
  134
  144
  154
  164
  175
  186
  198
  210
  222
  235
  248
  262
  276
  291
  307
  324
  341
  359
  378
  398
  418
  440
  463
  486
  511
  538
Cash from operations, $m
  10,069
  13,372
  13,740
  14,140
  14,574
  15,042
  15,545
  16,084
  16,659
  17,272
  17,924
  17,583
  18,316
  19,092
  19,914
  20,782
  21,699
  22,667
  23,687
  24,763
  25,897
  27,091
  28,349
  29,672
  31,066
  32,531
  34,073
  35,694
  37,399
  39,192
  41,076
Maintenance CAPEX, $m
  0
  -1,878
  -1,938
  -2,000
  -2,068
  -2,141
  -2,220
  -2,305
  -2,396
  -2,492
  -2,596
  -2,705
  -2,822
  -2,945
  -3,076
  -3,214
  -3,360
  -3,514
  -3,677
  -3,848
  -4,029
  -4,220
  -4,420
  -4,632
  -4,854
  -5,088
  -5,335
  -5,594
  -5,866
  -6,153
  -6,454
New CAPEX, $m
  -2,224
  -600
  -620
  -676
  -732
  -790
  -848
  -907
  -969
  -1,032
  -1,097
  -1,164
  -1,234
  -1,306
  -1,381
  -1,460
  -1,542
  -1,627
  -1,716
  -1,809
  -1,906
  -2,007
  -2,113
  -2,225
  -2,341
  -2,463
  -2,591
  -2,725
  -2,865
  -3,012
  -3,166
Cash from investing activities, $m
  -2,470
  -2,478
  -2,558
  -2,676
  -2,800
  -2,931
  -3,068
  -3,212
  -3,365
  -3,524
  -3,693
  -3,869
  -4,056
  -4,251
  -4,457
  -4,674
  -4,902
  -5,141
  -5,393
  -5,657
  -5,935
  -6,227
  -6,533
  -6,857
  -7,195
  -7,551
  -7,926
  -8,319
  -8,731
  -9,165
  -9,620
Free cash flow, $m
  7,599
  10,894
  11,181
  11,464
  11,774
  12,112
  12,477
  12,872
  13,295
  13,748
  14,231
  13,713
  14,260
  14,841
  15,457
  16,108
  16,798
  17,526
  18,295
  19,106
  19,962
  20,864
  21,815
  22,816
  23,870
  24,980
  26,148
  27,376
  28,668
  30,027
  31,456
Issuance/(repayment) of debt, $m
  -614
  1,642
  1,835
  2,001
  2,167
  2,337
  2,509
  2,685
  2,866
  3,053
  3,245
  3,445
  3,651
  3,865
  4,088
  4,320
  4,562
  4,814
  5,077
  5,352
  5,639
  5,940
  6,254
  6,583
  6,928
  7,289
  7,667
  8,063
  8,478
  8,913
  9,369
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
  1,642
  1,835
  2,001
  2,167
  2,337
  2,509
  2,685
  2,866
  3,053
  3,245
  3,445
  3,651
  3,865
  4,088
  4,320
  4,562
  4,814
  5,077
  5,352
  5,639
  5,940
  6,254
  6,583
  6,928
  7,289
  7,667
  8,063
  8,478
  8,913
  9,369
Total cash flow (excl. dividends), $m
  2,752
  12,536
  13,017
  13,465
  13,941
  14,448
  14,986
  15,557
  16,161
  16,801
  17,477
  17,158
  17,912
  18,707
  19,545
  20,429
  21,360
  22,340
  23,372
  24,458
  25,602
  26,804
  28,069
  29,399
  30,798
  32,269
  33,814
  35,439
  37,146
  38,941
  40,826
Retained Cash Flow (-), $m
  366
  -1,076
  -1,164
  -1,268
  -1,374
  -1,481
  -1,591
  -1,703
  -1,817
  -1,936
  -2,058
  -2,184
  -2,315
  -2,451
  -2,592
  -2,739
  -2,892
  -3,052
  -3,219
  -3,393
  -3,575
  -3,766
  -3,965
  -4,174
  -4,392
  -4,621
  -4,861
  -5,112
  -5,375
  -5,651
  -5,940
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
 
  13,002
  11,853
  12,196
  12,567
  12,967
  13,396
  13,855
  14,344
  14,865
  15,419
  14,974
  15,597
  16,256
  16,953
  17,690
  18,467
  19,288
  20,153
  21,065
  22,026
  23,038
  24,104
  25,226
  26,406
  27,648
  28,954
  30,327
  31,771
  33,290
  34,886
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
 
  12,466
  10,851
  10,614
  10,348
  10,051
  9,722
  9,360
  8,965
  8,539
  8,084
  7,111
  6,656
  6,181
  5,691
  5,193
  4,693
  4,197
  3,711
  3,243
  2,799
  2,383
  2,000
  1,653
  1,345
  1,076
  845
  651
  492
  363
  263
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 15.5
Price to Sales 0.5
Price to Book 2.2
Price to Tangible Book
Price to Cash Flow 8.2
Price to Free Cash Flow 10.5
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 3% 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 1015.24 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 $78.8 billion.

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▶ [$$] CVS Moves Deeper Into Doctors Turf   [12:48AM  The Wall Street Journal]
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▶ [$$] CVS Moves Deeper Into Doctors' Turf   [03:56PM  The Wall Street Journal]
▶ Amazon to Eventually Topple CVS?   [11:36AM  TheStreet.com]
▶ CVS Health Reports Second Quarter Results   [06:55AM  PR Newswire]
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▶ 3 Things You Should Watch For in CVS Health's Q2 Update   [Aug-06-17 02:04PM  Motley Fool]
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▶ ETFs with exposure to CVS Health Corp. : July 24, 2017   [Jul-24-17 03:13PM  Capital Cube]
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▶ ETFs with exposure to CVS Health Corp. : July 14, 2017   [Jul-14-17 01:47PM  Capital Cube]
▶ [$$] CVS, Walgreens Face Challenges   [11:24AM  Barrons.com]
▶ CVS to pay $5 million to resolve U.S. drug probe   [Jul-11-17 06:17PM  Reuters]
▶ Why Rite Aid Remains A Good Buy   [Jul-07-17 11:55AM  Forbes]
▶ CVS Health Corporation Announces Quarterly Dividend   [Jul-06-17 12:11PM  PR Newswire]
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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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