CVS Health (CVS) is back in focus after a packed March, with a new Google Cloud partnership on healthcare technology, a fresh board appointment, an affirmed dividend, and a high profile class action targeting its PBM unit.

Despite the headlines around the Google Cloud partnership, dividend affirmation, leadership change and PBM lawsuit, the share price has seen a 6% decline over the last 7 days and an 11% year to date share price decline, while the 1 year total shareholder return of 9.53% suggests longer term holders have had a different experience. This points to fading near term momentum alongside steadier multi year gains.

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So with CVS Health trading at US$71.29, an indicated intrinsic discount of about 75% and a 9.53% 1 year total return already on the board, is there still a potential entry point here, or is the market already pricing in future growth?

Most Popular Narrative: 31.5% Undervalued

According to the most followed narrative on CVS Health, a fair value of about $104 sits well above the latest close at $71.29, which puts a sizable valuation gap in focus.

Regardless of these risks in the near term, the present valuation for CVS indicates that the stock is undervalued by the street. At a P/E ratio of 10x, significantly lower than the sector average, CVS prices in at a 71% discount to its peers and points to some significant upside should it be able to execute on its turnaround strategy.

Curious what sits behind that fair value of roughly $104? The narrative leans heavily on future earnings power, a reset cost base, and a different profit mix than today.

Result: Fair Value of $104.01 (UNDERVALUED)

However, this hinges on CVS containing rising medical costs and executing its US$2b restructuring. Any stumble is likely to pressure margins and sentiment further.

Another View: Earnings Multiple Flips the Story

While the SWS DCF model points to CVS Health trading 75% below an estimated future cash flow value of $285.37, the earnings multiple tells a very different story. On this view, CVS looks expensive, with a P/E of 51.3x versus a fair ratio of 41.8x.

That 51.3x P/E is also well above the US Healthcare industry at 21.5x and peers at 18.1x, which suggests less room for error if earnings do not keep pace with expectations. When one model flags deep value and another flags a premium, which risk are you more comfortable holding?

Next Steps

With sentiment clearly split between risks and rewards, it makes sense to move quickly, review the numbers yourself, and decide where you stand. Start with 3 key rewards and 4 important warning signs.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.