Published Thu, 11 Jul 2019 13:37:23 -0400 on Seeking Alpha
CVS Health (CVS) trades around five-year lows due to uncertainties about the company's future growth and worries about its rising debt. The company's acquisition of Aetna was strategically sound, however, and strong cash generation should allow CVS Health to reduce its leverage substantially over the next couple of years.
Still, the market remains pessimistic. CVS shares have declined ~16% year-to-date, compared with a 19% gain for the broader S&P 500 Index. As a result, we now view CVS as one of the most undervalued healthcare dividend stocks in the S&P 500.
Once acquisition synergies have been captured and interest expenses are declining, earnings should grow steadily. And thanks to strong free cash generation, CVS Health should be able to ramp up its shareholder returns to highly attractive levels. This makes CVS Health a good pick for income investors as well as for total return oriented investors with a long-term mindset.
Why The Takeover Of Aetna Was A Smart Strategic Move
When CVS Health announced the Aetna acquisition, CVS stock traded at more than $70 per share, whereas its share price has declined to just $55 right now. One could thus assume that the acquisition was not a smart move, but that is not true, I believe.
The takeover of Aetna has broadened CVS' reach in the healthcare industry, and it allowed the company to create new types of offerings to consumers and patients.
Source: CVS Aetna takeover announcement
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