Summary
- CVS's Analyst Day highlighted its three strategic initiatives on Aetna Integration, Enterprise Modernization, and Business Transformation.
- The company has an aggressive plan to realize $3.5B EBIT savings through these initiatives, and have a clear upwards trajectory starting 2019 onwards.
- The analyst day highlights the positive strides management has made in setting the company up for long-term growth.
- With multiples compressed and a $7.5bn deleveraging underway, we think the equity is worth a look.
CVS Health (CVS) is one of the largest healthcare players in the world with 100M+ lives covered and $250B+ revenue expected in FY2019. With the recent acquisition of Aetna, there is much scope to expand the business and utilize cost synergies.
Management has a solid plan to provide ~$3.5M EBIT upside annually in the next three years and return to a 3x leverage target through its updated capital allocation strategy. Although we do not deny there are headwinds ahead, the stock looks attractive on an earnings and cash flow basis. We think the bar is low at current levels, with the massive $7.5bn multi-year deleveraging process set to transfer value to the equity.
Reviewing CVS's Analyst Day And Guidance Updates
At CVS's recent analyst day, management re-affirmed its commitment to meeting FY2019 numbers and presented an aggressive three-pronged approach to improve profitability over the long term. The three-pronged approach consists of 1) Synergies from the Aetna acquisition, 2) Enterprise Modernization Initiatives, and 3) Transformations.
