CVS Health Stock: Future Superior To Recent Past

The recent price drop at CVS Health (CVS) has caught my attention. As earnings at the pharmacy chain have continued to grow, the stock price has fallen from $113 to $81 in the past years as investors have needed to readjust their sanity in valuing the stock.

Last year, it was trading at $113 per share compared to trailing earnings of $4.51. This was a silly high valuation of 25x earnings for a healthcare retailer. About $5 billion in profits should have in no way justified a valuation of $124 billion. The business was incredibly strong, and was delivering impressive growth, but the stock had reached a point that was nearly double what it was worth.

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Merger and Acquisition Investing

I poked at Post Holdings recently, particularly if there are investors out there owning the shares for the exclusive purpose of securing a buyout premium with the hopes that Kellogg, General Mills, Kraft, or Nestle wants it and pays 30% above the prevailing market price to get it. The reason I don’t like it is because the default/status quo option is that the business will continue to operate as a standalone entity and will eventually return to fair value which will be an unpleasant experience for shareholders that have to deal with high debt and a 30x earnings valuation for a billion-dollar revenue business.

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