CVS Company Research and Valuation: Harvard Case Solution & Analysis

CVS Company Research and Valuation Case Study Solution

Basic Information:

The CVS Health Company (CVS)was formed in the year 1963 by three partners, two of the partners were brothers named Stanley Goldstein and Sidney Goldstein. The company operates in Heath care and retail pharmacy industry, CVS has become one of the biggest company in the sector operating in US. The name of the company itself is a unique characteristic, CVS stands for Consumer Value Stores, it can be said that from the first day of operation, the emphasis of the senior management is on customer satisfaction and to provide value to customers which is one of the most important reason for this enormous growth of CVS in no time. (Reuters, 2017)

In the year 1969, the company was being sold to a giant of shoe manufacturing industry named Melville Corporation. Before and after the acquisition of CVS by Melville, the company pursued aggressive inorganic growth strategy. They have acquired various small companies and medical and drug selling stores in order to increase the market share. Right after the five years of acquisition of CVS by Melville, the sales of CVS reached to the level of $100 million which can be consider as an out standing growth especially for a company which was incorporated just ten years ago.

In the year 1983, the company further expanded their operations by entering into the health care service providing and launched their first Hemophilia health care unit. Despite the favorable arrangements and relations with the Melville Corporation, CVS has been spun-off from the portfolio of Melville and started to operate as a standalone company. This restructuring also failed to stop CVS from becoming the largest company operating in the industry. After separating form Melville, CVS was registered on the New York stock market and one of the founder was named as the CEO of the company. (Tabuchi, 2015)

Investment Summary:

CVS Company (CVS) is one of the largest pharmaceutical retail organization in the US and in the world, it is operating in almost every part of the US where the customers of the company are located. Apart from the retail drug and pharmaceutical business the CVS is also involves in providing the healthcare services through its healthcare centers and clinics. As the company is operating in a sector where it is very important to deliver the best services and products to their customers, since the first day of operation of the company the management ensures that it designs strategy in such a manner that could be most financially beneficial for the company and which is also equally beneficial for the customers as well. The mission of the company is to help and assist customers in achieving better health.

The company appears to be very effective for the investment, the investors will be able to get substantial returns on their investment, the profits and revenues of the company are growing continuously along with the aggressive expansion of the retail stores and healthcare clinics. However, it can be said that the shares of CVS are substantially overvalued, the current share price according to the free cash flow method of CVS is approximately $39.33 per share while the actual share price of CVS is almost $79.41. It can be said that the investors should have to avoid investing in the company until the share price of the CVS reflects it true earning potential. However, it can be argued that it is very difficult that the share price reflects true earning potential because of the fact that actual share price is based on the buying and selling transaction.

Business Description:

The majority of the revenue of the CVS Company is derived from retail pharmacy stores and walk-in health care clinics. The company have almost 9700 of the retail pharmacy stores where the prescribed drugs and general medicines are sold. In addition to this, there are 1100 walk-in health care clinics where the healthcare services are provided by the specialists to the patients. Furthermore, there is another segment of CVS which is known as Corporate Segment, this segment involves in executing management and administrative service.

On the other hand, the major expenses of the company includes the salaries of the staffs and other utility expenses. Moreover, significant expenditures have also been incurred to expand the operations, several new clinics and pharmacies within the target stores have been opened during the year 2016 which result in major expenditure for the company.

CVS Company Research and Valuation Harvard Case Solution & Analysis

 

 

Management and Governance:

The senior management and executives of the company are very expert and experienced in their respective fields, they have all the necessary experience which is critical to the success of the company. The CEO and President of the CVS Company is Larry Merlo, he is one of the most important reason for the recent success of the company. Under his leadership the company have made some of the most successful acquisition. He is associated from the year 1990 when CVS acquired Peoples Drug. Mr. Larry is Pharmacist by his education and have served on many designations since he joined CVS.......................

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