We believe that CVS Health stock (NYSE: CVS ) is currently a better pick than its competitor Walmart stock (NYSE: WMT ), given its better prospects and a relatively lower trailing earnings valuation of 0.4x vs. Walmart’s 0.6x
Looking at stock returns, CVS, with returns of -1% so far this year, has outperformed WMT stock, which is down 5%, and both have outperformed the broader S&P500, down 15 % During this period. There’s more to the comparison, and in the sections below, we discuss why we believe CVS stock will deliver better returns than WMT stock over the next three years. We compare a variety of factors such as historical earnings growth, returns and valuation multiples in an interactive dashboard analysis. CVS Health v. Walmart: Which stock is a better bet? Portions of the analysis are summarized below.
1. CVS Health’s
- Both companies managed to see sales growth over the past few quarters. However, CVS’s 10.6% revenue growth over the past twelve months is better than Walmart’s 3.8%.
- Looking at a longer time frame, CVS Health’s sales have grown at an average annual growth rate of 15.1% to $292 billion in 2021, compared to $195 billion in 2018, while Walmart saw its sales grow at a rate average of 3.7% to $573 billion in fiscal 2022 (Walmart’s fiscal year ends in January), versus $514 billion in fiscal 2019.
- CVS Health’s revenue growth has been helped by its Aetna
acquisition in 2018, while Walmart’s revenue growth was negatively impacted by the sale of the Asda and Seiyu businesses in Q1 FY22.
- CVS’s revenue growth since the start of the pandemic has been driven by increased demand for Covid-19 testing and vaccine administration.
- The company’s health care benefits segment has seen an 18% increase in revenue between 2019 and 2021, led by an increase in total medical membership, which currently stands at 24.4 million, compared to 22.9 million in 2019. This trend is expected to continue throughout the coming years, given the aging of the US population.
- While CVS is expected to see a decline in revenue from testing and administering Covid-19 vaccines, its other businesses, including pharmacy services and health care benefits, are expected to grow steadily.
- Walmart’s revenue growth in the recent past has been driven by increased consumer spending on groceries and other necessities. Walmart’s broad offering and focus on cost-conscious shopping will likely help it thrive in a high-inflation environment.
- our CVS Health Income AND Walmart’s revenue dashboards provide more detail on company segments.
- The table below summarizes our revenue expectations for both companies over the next three years and shows a CAGR of 10.7% for CVS, compared to a CAGR of 1.9% for Walmart.
- Note that we have different methodologies for companies negatively impacted by Covid and those not impacted or positively impacted by Covid as we forecast future earnings. For companies adversely affected by Covid, we consider the trajectory of quarterly earnings recovery to predict the recovery to the pre-Covid earnings rate. Beyond the recovery point, we apply the average annual growth observed three years before Covid to simulate a return to normal conditions. For companies recording positive revenue growth during Covid, we consider the average annual growth before Covid with a certain weighting towards growth during Covid and the last twelve months.
2. CVS is more profitable
- CVS’s operating margin of 5.0% over the trailing twelve month period is better than Walmart’s 3.3%.
- That compares to figures of 5.8% and 4.2% seen in 2019 (fiscal 2020 for Walmart), respectively, before the pandemic.
- CVS’s free cash flow margin of 6.0% is better than Walmart’s 3.6%.
- our CVS Health’s operating income AND Walmart’s operating income panels have more detail.
- Looking at the financial risk, the two are comparable. CVS’s 40.9% debt as a percentage of equity is higher than Walmart’s 12.2%, but its 6.5% cash as a percentage of assets is slightly higher than the latter’s 5.6%, implying that Walmart has a better debt position and CVS has more cash cushion.
3. The network of all
- We see historical revenue growth, profitability and cash cushion to be better for CVS. It also trades at a relatively lower valuation. On the other hand, Walmart has a better debt position.
- Now, looking at the outlook, using P/S as a base, due to the high volatility in P/E and P/EBIT, we believe that CVS is currently the better choice of the two.
- The table below summarizes our revenue and return expectations for both companies over the next three years and shows an expected return of 27% for CVS during this period against a 0% expected return on Walmart stock, implying that investors are better off buying CVS over WMT, based on Trefis Machine Learning analysis – CVS Health v. Walmart – which also provides more detail on how we arrive at these numbers.
While CVS stock may be outperforming WMT, it’s useful to see how CVS Health Peers charge for the metrics that matter. You’ll find other valuable comparisons of companies across industries at Peer comparisons.
Additionally, the Covid-19 crisis has created many price disruptions, which can provide attractive trading opportunities. For example, you’d be surprised how counterintuitive stock valuation is Lowe’s v. Amerco.
With rising inflation and the Fed raising interest rates, among other factors, CVS stock has seen a 1% decline this year. Can it fall any more? See how low CVS Health stock could go by comparing its declines in previous market crashes. Here is a summary of the performance of all stocks in previous market crashes.
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