Skip to Content
Stock Analyst Update

CVS Maintains 2020 Bottom-Line Outlook Despite COVID-19

We view shares of this narrow-moat firm as significantly undervalued.


Narrow-moat CVS Health (CVS) turned in first-quarter operating results that significantly beat expectations, due to a surge of activity in its stores and PBM related to shelter-in-place orders that began in mid-March. Joining the other four managed care organizations that we cover, CVS management has maintained its 2020 EPS guidance, suggesting the pullback in its retail stores, in particular, following initial stocking activities in March should not trip up the rest of 2020. We are maintaining our fair value estimate for CVS and still view shares as significantly undervalued.

In the quarter, revenue reached $66.8 billion (8% growth), above Capital IQ consensus of $64.1 billion, and adjusted earnings per share hit $1.91 (18% growth), above consensus of $1.63. Management estimates that COVID-19 positively influenced its adjusted EPS by $0.10 in the quarter. By segment, the PBM business delivered 12% growth in claims processed to 541 million in the quarter, including about 125 basis points of benefit from COVID-19, and adjusted operating income grew 25% to $1.2 billion. The retail/long-term care segment grew 8% year over year to $22.7 billion in sales, and adjusted operating income grew 27% to $1.9 billion in the quarter, which included a surge related to COVID-19 on prescription volume (up 200 basis points on COVID-19) and front of store sales (up 650 basis points on COVID-19). In health insurance, CVS grew medical membership 2% sequentially to 23.5 million on strength in government plans. 

With these strong first-quarter results, management was able to maintain its bottom-line guidance for 2020, despite a pullback in momentum in April after initial stocking activities in March. For example, front of store sales were down 11% year over year in April, after being up 19% in March. On the bottom line though, the firm still expects EPS of $7.04-$7.17 and operating cash flow of $10.5 billion-$11.0 billion in 2020, and our estimates remain roughly in line with that outlook.

Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.

Julie Utterback does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.

We’d like to share more about how we work and what drives our day-to-day business.

We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.

How we use your information depends on the product and service that you use and your relationship with us. We may use it to:

  • Verify your identity, personalize the content you receive, or create and administer your account.
  • Provide specific products and services to you, such as portfolio management or data aggregation.
  • Develop and improve features of our offerings.
  • Gear advertisements and other marketing efforts towards your interests.

To learn more about how we handle and protect your data, visit our privacy center.

Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.

To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.

Read our editorial policy to learn more about our process.