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How Does CVS Health Corporation's (NYSE:CVS) Earnings Growth Stack Up Against Industry Performance?

Simply Wall St

For investors with a long-term horizon, assessing earnings trend over time and against industry benchmarks is more valuable than looking at a single earnings announcement in one point in time. Investors may find my commentary, albeit very high-level and brief, on CVS Health Corporation (NYSE:CVS) useful as an attempt to give more color around how CVS Health is currently performing.

Check out our latest analysis for CVS Health

Commentary On CVS's Past Performance

CVS's trailing twelve-month earnings (from 30 June 2019) of US$4.3b has jumped 45% compared to the previous year.

Furthermore, this one-year growth rate has exceeded its 5-year annual growth average of -11%, indicating the rate at which CVS is growing has accelerated. How has it been able to do this? Let's take a look at whether it is only due to an industry uplift, or if CVS Health has experienced some company-specific growth.

NYSE:CVS Income Statement, October 4th 2019

In terms of returns from investment, CVS Health has fallen short of achieving a 20% return on equity (ROE), recording 7.0% instead. Furthermore, its return on assets (ROA) of 2.9% is below the US Healthcare industry of 5.2%, indicating CVS Health's are utilized less efficiently. And finally, its return on capital (ROC), which also accounts for CVS Health’s debt level, has declined over the past 3 years from 15% to 6.6%. This correlates with an increase in debt holding, with debt-to-equity ratio rising from 35% to 115% over the past 5 years.

What does this mean?

Though CVS Health's past data is helpful, it is only one aspect of my investment thesis. Recent positive growth doesn’t necessarily mean it’s onwards and upwards for the company. There may be factors that are impacting the industry as a whole, thus the high industry growth rate over the same time frame. You should continue to research CVS Health to get a more holistic view of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for CVS’s future growth? Take a look at our free research report of analyst consensus for CVS’s outlook.
  2. Financial Health: Are CVS’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

NB: Figures in this article are calculated using data from the trailing twelve months from 30 June 2019. This may not be consistent with full year annual report figures.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.