Stock Analysis on Net

CVS Health Corp. (NYSE:CVS)

Dividend Discount Model (DDM)

Microsoft Excel

In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Dividends are the cleanest and most straightforward measure of cash flow because these are clearly cash flows that go directly to the investor.


Intrinsic Stock Value (Valuation Summary)

CVS Health Corp., dividends per share (DPS) forecast

US$

Microsoft Excel
Year Value DPSt or Terminal value (TVt) Calculation Present value at 10.77%
0 DPS01 2.66
1 DPS1 2.78 = 2.66 × (1 + 4.46%) 2.51
2 DPS2 2.92 = 2.78 × (1 + 4.99%) 2.38
3 DPS3 3.08 = 2.92 × (1 + 5.52%) 2.27
4 DPS4 3.26 = 3.08 × (1 + 6.05%) 2.17
5 DPS5 3.48 = 3.26 × (1 + 6.58%) 2.09
5 Terminal value (TV5) 88.63 = 3.48 × (1 + 6.58%) ÷ (10.77%6.58%) 53.15
Intrinsic value of CVS Health Corp. common stock (per share) $64.56
Current share price $67.75

Based on: 10-K (reporting date: 2024-12-31).

1 DPS0 = Sum of the last year dividends per share of CVS Health Corp. common stock. See details »

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.


Required Rate of Return (r)

Microsoft Excel
Assumptions
Rate of return on LT Treasury Composite1 RF 4.60%
Expected rate of return on market portfolio2 E(RM) 14.89%
Systematic risk of CVS Health Corp. common stock βCVS 0.60
 
Required rate of return on CVS Health Corp. common stock3 rCVS 10.77%

1 Unweighted average of bid yields on all outstanding fixed-coupon U.S. Treasury bonds neither due or callable in less than 10 years (risk-free rate of return proxy).

2 See details »

3 rCVS = RF + βCVS [E(RM) – RF]
= 4.60% + 0.60 [14.89%4.60%]
= 10.77%


Dividend Growth Rate (g)

Dividend growth rate (g) implied by PRAT model

CVS Health Corp., PRAT model

Microsoft Excel
Average Dec 31, 2024 Dec 31, 2023 Dec 31, 2022 Dec 31, 2021 Dec 31, 2020
Selected Financial Data (US$ in millions)
Common stock dividends 3,381 3,138 2,910 2,644 2,644
Net income attributable to CVS Health 4,614 8,344 4,149 7,910 7,179
Revenues from customers 370,656 356,623 321,629 290,912 267,908
Total assets 253,215 249,728 228,275 232,999 230,715
Total CVS Health shareholders’ equity 75,560 76,461 71,015 75,075 69,389
Financial Ratios
Retention rate1 0.27 0.62 0.30 0.67 0.63
Profit margin2 1.24% 2.34% 1.29% 2.72% 2.68%
Asset turnover3 1.46 1.43 1.41 1.25 1.16
Financial leverage4 3.35 3.27 3.21 3.10 3.32
Averages
Retention rate 0.50
Profit margin 2.05%
Asset turnover 1.34
Financial leverage 3.25
 
Dividend growth rate (g)5 4.46%

Based on: 10-K (reporting date: 2024-12-31), 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31).

2024 Calculations

1 Retention rate = (Net income attributable to CVS Health – Common stock dividends) ÷ Net income attributable to CVS Health
= (4,6143,381) ÷ 4,614
= 0.27

2 Profit margin = 100 × Net income attributable to CVS Health ÷ Revenues from customers
= 100 × 4,614 ÷ 370,656
= 1.24%

3 Asset turnover = Revenues from customers ÷ Total assets
= 370,656 ÷ 253,215
= 1.46

4 Financial leverage = Total assets ÷ Total CVS Health shareholders’ equity
= 253,215 ÷ 75,560
= 3.35

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= 0.50 × 2.05% × 1.34 × 3.25
= 4.46%


Dividend growth rate (g) implied by Gordon growth model

g = 100 × (P0 × rD0) ÷ (P0 + D0)
= 100 × ($67.75 × 10.77%$2.66) ÷ ($67.75 + $2.66)
= 6.58%

where:
P0 = current price of share of CVS Health Corp. common stock
D0 = the last year dividends per share of CVS Health Corp. common stock
r = required rate of return on CVS Health Corp. common stock


Dividend growth rate (g) forecast

CVS Health Corp., H-model

Microsoft Excel
Year Value gt
1 g1 4.46%
2 g2 4.99%
3 g3 5.52%
4 g4 6.05%
5 and thereafter g5 6.58%

where:
g1 is implied by PRAT model
g5 is implied by Gordon growth model
g2, g3 and g4 are calculated using linear interpolation between g1 and g5

Calculations

g2 = g1 + (g5g1) × (2 – 1) ÷ (5 – 1)
= 4.46% + (6.58%4.46%) × (2 – 1) ÷ (5 – 1)
= 4.99%

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= 4.46% + (6.58%4.46%) × (3 – 1) ÷ (5 – 1)
= 5.52%

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= 4.46% + (6.58%4.46%) × (4 – 1) ÷ (5 – 1)
= 6.05%