CVS Health Corporation (CVS): A Cheap Healthcare Stock to Buy Heading Into 2025

CVS Health Corporation (CVS) has had a challenging year, with its stock price down by approximately 25% as of Dec. 29, 2024. However, analysts and investors are optimistic about the company's prospects heading into 2025. In this article, we will analyze CVS Health's recent performance, valuation, and growth prospects to determine if it is a cheap healthcare stock worth buying.

Recent Performance and Valuation

CVS Health's stock price has been volatile in recent months, but it has rebounded from its 52-week low of $43.56, which it hit in late October 2024. As of Dec. 29, 2024, the stock is trading at $44.49, with a market capitalization of $55.99 billion. The company's forward P/E ratio is 6.57, which is significantly lower than the industry average of 26.3x. This suggests that CVS Health is undervalued compared to its peers.

CVS Health's forward P/E ratio is also lower than its historical average, indicating that the market may be pricing in a more conservative outlook for the company. However, it is essential to consider the company's fundamentals and growth prospects before making an investment decision.

Fundamentals and Growth Prospects

CVS Health operates in the healthcare industry, which is expected to grow at a CAGR of 5.4% from 2024 to 2029. The company's diversified business model, which includes pharmacy services, health services, and insurance, positions it well to capitalize on this growth.

CVS Health's revenue growth rate is estimated to be 5.01% over the next five years, which is lower than the industry average of 18.4%. However, the company's profitability metrics, such as the PE ratio, PS ratio, and PB ratio, suggest that it is relatively undervalued compared to its peers.

The company's acquisition of Aetna in 2018 has expanded its offerings to include medical, dental, and vision insurance, enabling it to provide comprehensive healthcare solutions. This integration has allowed CVS Health to leverage its extensive retail pharmacy network and pharmacy benefit management services to improve customer access to services and enhance health outcomes.

CVS Health's debt level and financial leverage are higher than those of its peers, which can pose potential risks such as increased interest expenses and a higher risk of default. However, there are also potential benefits such as tax advantages and improved access to capital. Investors should carefully consider these risks and benefits when evaluating CVS Health as an investment opportunity.

Analyst Recommendations

As of Dec. 29, 2024, CVS Health has a Zacks Rank of #3 (Hold), with 25 analyst opinions. The consensus EPS estimate for the next quarter is $1.02, signifying a 51.89% drop compared to the same quarter of the previous year. Meanwhile, the consensus revenue estimate for the next quarter is $97.27 billion, up 3.69% from the prior-year quarter.

Conclusion

CVS Health Corporation (CVS) is a cheap healthcare stock with a forward P/E ratio of 6.57, which is lower than the industry average. The company's fundamentals and growth prospects suggest that it is undervalued compared to its peers. However, investors should be aware of the company's higher debt level and financial leverage, which can pose potential risks. Overall, CVS Health is an attractive investment opportunity for those looking to buy cheap healthcare stocks heading into 2025.