1. INITIATING COVERAGE REPORT Temple University Investment Association
The Fox Fund
October 25th
, 2016
Tyler McMahon: Lead Analyst
Tyler.mcmahon@temple.edu
Andrew Cutrona: Lead Analyst
Andrew.cutrona@temple.edu
Kevin Vo: Associate Analyst
Kevin.vo@temple.edu
Amine Aouom: Associate Analyst
Amine.aouom@temple.edu
COMPANY OVERVIEW
CVS Health Corp. is the leading health care retailer with over
9,600 stores in 49 states, including Washington D.C., Puerto
Rico, and Brazil. The company offers a broad selection of
pharmaceutical services and drugs (prescription and over-the-
counter), cosmetics, and other general merchandise, through its
convenient and smaller store size (between 10,000 to 13,000
square feet). The company derives its revenue into two
segments: Pharmacy Services (58.2% of FY 2015 revenue) and
Retail/LTC (41.8% of FY 2015 revenue). CVS Health Corp.
reports the end of its fiscal year on February 9th.
INVESTMENT THESIS
CVS Health is currently trading at a 18.21% discount to the
company’s average three-year forward P/E multiple of 16.8x.
CVS began trading at a discount when it reported declines in
earnings per share and downgraded EPS guidance in its Q1 and
Q2 of FY 2016. CVS is recognized as one of the most well-
known and profitable retail drug store chain in the United
States. CVS posted consecutive negative EPS growth in the
first two quarters of FY 2016 due to the acquisition related
costs associated with CVS Health’s acquisitions of Target
pharmacy’s and Omnicare. Even though top line growth
continued to grow at YoY rates of 19% and 17.6% respectfully,
CVS sold off 20.2% between February and October of FY
2016 as a result of YoY earnings declines of 2.8% and 23.2%
respectfully. Our sector believes that investors have
overreacted and CVS health, despite negative earnings growth,
it is as financially strong as it has ever been due to its
acquisitions of Target pharmacies and Omnicare assisted-living
and long-term-care facility. Analysts have overlooked the real
reasons for the EPS decline and the realized revenue growth
from the FY 2015 acquisitions along with the companies
MinuteClinic and Telehealth Initiatives, and the increasing
demand for prescription drugs will drive CVS back to its
average three-year forward P/E multiple of 16.8x. Using
consensus next twelve months earnings forecasts, our sector
arrived at our fair value estimate of $105, yielding a 21.2%
return.
CONSUMERSTAPLES: DRUGRETAIL
CVS Health Corporation
Exchange: NYSE Ticker: CVS Target Price: $105.00
Sector Outperform
Recommendation: BUY
Key Statistics: values in billons except per share
Price $88.01 52 Week Low $85.41
Return 21.2% 52 Week High $106.67
Shares O/S 1.066 Yield 1.9%
Market Cap $93.82 Enterprise Value $121.26
One-Year Price Graph
Earnings/Revenue Surprise History:
Quarters EPS Revenue Δ Price
3Q15 0.00% 1.15% (4.84%)
4Q15 (0.13%) 0.05% 0.96%
1Q16 1.64% 0.50% 2.43%
2Q16 1.30% (1.25%) 4.89%
Earnings Projections:
Fiscal
Year
Q1 Q2 Q3 Q4 Year
2014 $1.02 $1.13 $1.15 $1.21 $4.51
2015 $1.14 $1.22 $1.29 $1.53 $5.18
2016 $1.18 $1.32 $1.57e $1.79e $5.86
2017e $1.37 $1.52 $1.70 $1.95 $6.53
All prices current at end of previous trading sessions from date of
report. Data is sourced from local exchanges via FactSet, Bloomberg
and other vendors. The Fox Fund fund does and seeks to do business
with companies covered in its research reports.

2. Fall, 2016
T e m p l e U n i v e r s i t y I n v e s t m e n t A s s o c i a t i o n : T h e F o x F u n d Page 2
SEGMENTS OVERVIEW
Pharmacy Services
Revenue from the Pharmacy Services
segment accounted for 58.2% of the
total net revenue during FY 2015. CVS
Health generates most of its revenue
through a series of intermediary
operations with its clients known as
pharmacy benefit managers (PBM).
PBMs provide services including plan
design and administration, formulary
management, Medicare Part D services,
mail order, specialty pharmacy and other
miscellaneous provisions. Many of the
clients of CVS Health consist of
insurance companies, employers, unions,
public and private institutions, and so
forth. The Pharmacy Services segment
conducts most of its operations on dispensing prescription drugs through pharmacy network transactions and mail
choice. As of the FY 2015 filing, pharmacy network claims increased by 9% from 8.49 million in FY 2014 to a total of
926.2 million. Mail choice claims also grew 4% from 82.4 million in FY 2014 to a total of 85.7 million. The rising
number of claims from the pharmacy network and mail choice operations contributed to an increase of total net revenue
and operating profit from FY 2014.
Retail/LTC
The Retail/LTC segment includes over 9,600 retail stores, healthcare clinics, and online retail pharmacy services. The
segment makes up 41.8% of the total net revenue in FY 2015. CVS Health generates this portion of revenue from selling
prescription drugs and other wide assortment of general merchandise, including over-the-counter drugs, beauty products
and cosmetics, personal care, convenience foods, photo finishing, and other miscellaneous items. The Retail/LTC
segment also conducts its operations on pharmaceutical distributions, pharmacy consulting, chronic care ancillary
services, commercialization, and CVS MinuteClinic offerings. MinuteClinics are services staffed by nurse practitioners
and physician assistants taking on protocols to perform health screenings, diagnose and monitor health conditions, and
distribute vaccinations.
INDUSTRY OVERVIEW
Discretionary Spending
Consumer spending metrics in the U.S. retains its strength throughout FY 2016 despite economic slowdowns overseas.
The consumer confidence index has risen to 104.1 in September, an increase from 101.4 in the prior month. Disposable
personal income has grown 3.4% in August of FY 2016, with the growth of consumer spending at 4.4% year by year,
annual GDP growth at 1.4%, and unemployment lowering at 4.0%. This reflects stronger economic growth due to
higher income levels and rising job growth, an indication for rising consumer spending levels. The Retail/LTC segment
comprises 41.2% of CVS Health’s total net revenue in FY 2015. Thus, the growth in consumer confidence, disposable
income, and consumer spending, can help the company accumulate more net revenue and operating profit going
forward in FY 2016.
Health Care
The sales of prescription drugs and medical services consist a majority of net revenue generated from the company’s
Pharmacy Services sector. More people are currently living longer as they age, and are demanding more for prescription
drugs and medical care. Gross sales for pharmaceuticals have reached $132.4 billion in FY 2015 and is forecasted to
grow at 7.8% in FY 2016, with sales estimated to reach at $143.5 billion. However, one of the presidential candidates of
the 2016 U.S. election have announced further regulations on prescription drug pricing, in response to the massive
5000% price hike of Daraprim by Turing Pharmaceuticals. If the candidate were to win the election, uncertainties will
loom upon the trajectory of pharmaceutical sales and growth throughout FY 2016.

3. Fall, 2016
T e m p l e U n i v e r s i t y I n v e s t m e n t A s s o c i a t i o n : T h e F o x F u n d Page 3
CATALYSTS
MinuteClinics
MinuteClinics are small walk-in retail health clinics
within the CVS Caremark pharmacy stores which utilize
nationally recognized protocols to diagnose and treat
minor health conditions, perform health screenings,
monitor chronic conditions and dispense vaccinations at
much lower prices than a hospital. It is usually staffed
with advanced degree nurses known as nurse
practitioners who treat routine maladies. Thanks to the
recent closing of the $1.9 billion acquisition of Target's
(NYSE:TGT) pharmacy
and clinic businesses, CVS
Health now counts more
than 9,500 retail stores in
its empire, with more than
1,100 of these stores also
offering walk-in medical
services under the MinuteClinic name. The Target deal
significantly expanded the company's footprint from the
7,800 retail stores and 900 clinics it owned at the end of
2014, and over the next two years the company plans on
adding another 400 MinuteClinics to its network.
Excluding the Target clinics acquired in the $1.9 billion
deal, CVS Health registered a 21% year-over-year
increase in revenue from MinuteClinics YoY between
FY2014 and FY2015, and achieved the full year 2015
revenue target of about $345 million. CVS Health’s
MinuteClinic remains the largest and fastest-growing
walk-in retail clinic operator in the country operating
about 52% of all the retail health clinics in the country.
As of today, 50% of the U.S. population actually lives
within 10 miles of a MinuteClinic, and CVS Health plans
to operate about 1,500 clinics by the end of 2017, with
30% of the expansion coming from new markets. The
trend toward the use of retail clinics is a response to a
number of factors that are shaping the healthcare
marketplace. With the Affordable Care Act, there are
millions of newly insured Americans seeking care,
placing stress on a system that already suffers from a
shortage of primary care physicians. In fact, that
shortage is expected to reach 45,000 doctors by 2020.
The United states aging population is another factor
increasing the need of retail clinics. Thousands of Baby
Boomers are reaching the age of 65 every day, and the
demand for health care services will only increase as they
continue to age. Finally, the national epidemics of
obesity, diabetes and other chronic illnesses mean that
more people need more care. Retail health clinics can
address all of these issues through their convenience,
affordability and the growing list of services offered for
both common acute and chronic illnesses. CVS looks
poised to take advantage of these trends and
MinuteClinic revenue will increase exponentially.
MOATS
Sourcing Advantage: The company has a strong wide
moat, given its sourcing advantage. CVS Health's wide
moat stems from its large claim volume, allowing the
company to leverage in managing drug pricing, which in
turn helps drive additional contracts for benefits
management. The company derives a return on equity of
close to 13%, slightly below the minimum requirement for
inclusion in the dividend portfolio. Nonetheless the return
on equity has been steadily improving in recent years and it
expected this to continue higher. CVS Health' dividend has
shown consistent increases over the last 10 years, satisfying
the need for dividend growth consistency. While it’s
preferable the dividend yield to be higher, the dividend
exceeds minimum threshold for inclusion. The company
thus met most of criteria for inclusion with its dividend
accumulation portfolio.
RISKS
Discretionary Spending: The company can face a greater
amount of systematic risk based on the trajectory of its
revenue and profits being tied to consumer discretionary
spending. In the first quarter of 2016, CVS Health
exhibited strong financial results. However, that hasn’t
translated to share price gains for the company due to the
stagnation of the share price of FY 2016. There are three
main reason that may affect the stock price for the
company. The first risk highlights a weak spot in the
second quarter in drug revenue. Stealth reported solid year-
over-year growth in its pharmacy benefits management
business, but the increase stemmed primarily from the
acquisition of pharmacy services company, Omnicare.
Second quarter revenue for the segment actually came in
below the company’s expectations. The main culprit was a
decline in hepatitis C prescription volume. Furthermore,
given that the Omnicare deal closed in August 2015, CVS
Health won’t be able to rely on that acquisition to produce
attractive year-over-year comparisons much longer.
Margin Contraction: The gross profit margin fell from
5.1% to 4.6% year over year, while operating declined from
3.8% to 3.5%. In the Retail/LTC segment, gross margin
has dropped from 30.9% to 29.2% year over year, and
operating margin decreased from 9.7% to 8.5%. In other
words, costs are accelerating higher than sales. So far, the
declining margins haven’t worried any investors. However,
a sustained negative trend could ultimately take a roll on
CVS Health’s share.
Macro Environment: The third risk is the
macroeconomic woes on qualitative risk factors, this
includes the change in the economic and financial
conditions of the country, which will have a direct impact
on sales and revenue for the company.

4. Fall, 2016
T e m p l e U n i v e r s i t y I n v e s t m e n t A s s o c i a t i o n : T h e F o x F u n d Page 4
Omnicare and Target Acquisitions
CVS Health acquired Omnicare for $13 billion in
August of 2015 and acquired all of Target’s
pharmacies for $1.9 billion in December of 2015.
Omnicare is a leading provider of pharmacy services
to both the assisted-living and long-term-care facility
markets. The Omnicare acquisition has significantly
expanded its ability to dispense prescriptions in
assisted living and long-term care facilities that
serve the senior patient population. The acquisition
should prove to be a significant growth opportunity
over the coming years as the graying of the
American population continues. CVS Health
acquired Target’s more than 1,660 pharmacies across 47 states and will operate them through a store-within-a-store
format, branded as CVS/pharmacy. CVS Health pharmacies will be included in all new Target stores that offer
pharmacy services. Thus, as Target continues to expand, CVS will continue to expand its pharmacies as well. In addition,
CVS Health and Target plan to develop five to ten small, flexible format stores over a two-year period following the deal
close, which will each be branded as TargetExpress and include a CVS Health pharmacy. These two acquisitions created
an expected rise in revenue of about 13% and are now becoming fully integrated and will continue to boost both top
and bottom line revenues while geographically expanding its footprint across the US particularly in the Pacific
Northwest via the Target acquisition where CVS Health has limited operations. The financial and operational returns on
investment of these acquisitions have not yet been fully felt due to the costs related to the 2015 acquisitions of Omnicare
and Target pharmacies. The biggest factors were paying off $542 million of debt early, $114 million more in interest
expense during the second quarter of 2016 versus the same quarter last year due to the issuance of debt to fund its
acquisitions of Target's pharmacies and clinics, as well as Omnicare, and CVS Health reported $81 million more in
integration costs related to these acquisitions. The Target integration activities are well underway and the remaining store
conversions expected to be completed by the end of this month.
Telehealth Incentive
CVS Health plans to enter the telehealth business because of an expected increase in patient demand for healthcare in
coming years. The company’s Telehealth incentive will provide patients with further access to doctors and will be able to
provide consultations via the phone and web. CVS Health's online site will give direct access to online consultations with
a doctor. Telehealth video consultation sessions are projected to increase from 19.7 million in 2014 to 158.4 million per
year by 2020. With the increased demand for patient care anticipated in future years, as a result of the expansion of
coverage through the Affordable Care Act, the primary care physician shortage, aging of the population and epidemic of
chronic disease, telehealth gives CVS Health the opportunity to offer high quality care to an expanded group of patients
in a variety of convenient and cost-effective locations.
The drug retail industry
The drug retail industry is expected to benefit from favorable long-term trends that include an aging population, a strong
drug pipeline, expanded healthcare coverage for Medicare participants, and millions of newly insured Americans seeking
care. New drugs are entering the market every year, and the average price for new drugs continues to rise. Growth of
prescription drugs spending is estimated to have increased 8.1% in 2015 to $321.9 billion. It is estimated that
prescription drug spending will have an average annual growth of 6.7% from 2016 to 2025, due to the continued effect
of newly approved and expensive drugs for the treatment of hepatitis C and cancer. The aging population is an
important trend, as prescription drug expenditures are highest for people aged 65 and older. In March 2016, the US
Census Bureau reported that the population aged 65 and older is projected double by 2050. Pharmacies are experiencing
an increase in demand from this aging US population. The elderly represented about 15% of the total population in
2015, and accounted for around 64% of all prescriptions written. The average annual number of prescriptions per
person increases significantly with age. Specifically, from 4.1 prescriptions for those aged 0 to 18, it increased to 16.2
prescriptions for 19- to 64-year-olds, and to 36.6 prescriptions for people aged 65 and older. The first Baby Boomers
turned 65 in 2011, and around 10,000 baby boomers turn 65 each day, CVS Health looks poised for significant growth in
the second half of 2016 and over the coming years.

5. Fall, 2016
T e m p l e U n i v e r s i t y I n v e s t m e n t A s s o c i a t i o n : T h e F o x F u n d Page 5
FINANCIALS
Revenue
CVS Health derives its revenue from two
main segments: Pharmacy Services (58.0%
of FY 2015) and Retail/LTC (42.0%). Since
FY 2011, revenue has grown from $107.1
billion to $153.3 billion, illustrating a 9.4%
CAGR. Revenue in its pharmacy segment
increased by 13.5% YoY and net revenues in
its Retail/LTC segment increased 6.2%
YoY. Nearly 50% of the increase in the retail
segment was driven by the addition of long-
term care operations acquired as part of the
Omnicare acquisition. The company’s
revenue is anticipated to grow from $153.3
billion to 233.9 billion in FY 2019, at a
11.2% CAGR.
Pharmacy Services Segment (58.2%% of FY 2015 revenue)
Pharmacy Services revenue increased from $76.2 billion in FY 2013 to $100.4 million in FY 2015, illustrating a CAGR of
14.8%. Over the last fiscal year, the increase is primarily due to 11% growth in specialty pharmacy (Specialty Connect),
new clients, increased volume from new products and the addition of the specialty pharmacy operations of Omnicare.
Partially offsetting this growth was an increase in the generic dispensing rate, which grew approximately 165 basis points
year on year. CVS Health’s specialty pharmacy services continued to gain share in Q4 2015. Mail choice claims processed
increased 4% YoY to 85.7 million and revenue per mail choice increased by 17% also due to growth in specialty
pharmacy in 2015. Pharmacy network claims processed also increased 9% YoY to 926.2 million claims mostly due to net
new business. Our sector has forecasted revenue to grow 14.1%, 4 year CAGR for this segment.
Retail/LTC Segment (42.8% of FY 2015 revenue)
Revenue in Retail/LTC Segment grew from $63.7 billion in FY 2013 to $72.0 billion in FY 2015, representing a CAGR
of 6.3%. Approximately half of the increase was driven by the addition of long-term care operations acquired as part of
the $10 billion acquisition of Omnicare. Omnicare helps strengthen CVS Health’s position in the Retail/LTC segment as
well as the specialty pharmacy market. The acquisition of Omnicare boosted the revenue growth of the company by
6.3% in the second half of FY 2015 and equipped CVS Health with a new pharmacy dispensing channel, enhancing its
ability to provide the continuity of care for patients as they transition through the healthcare system. Another growth
driver was the acquisition of Target’s more than 1,600 pharmacy departments and 80 medical clinics makes CVS
Health’s network of pharmacies the largest among its competitors. The acquisition of Target increases the company’s
share of the total prescriptions filled in the U.S allowing the company to expand its retail presence into new markets.
Pharmacy same store sales rose 4.5% YoY primarily due to same script growth of 4.8%. Looking forward, our sector has
forecasted revenues to grow 7.1%, 4-year CAGR because of an increase of prescription drugs due to the Omnicare and
Target acquisitions.
Margins
The retail pharmacy chain and pharmacy benefit management businesses do not typically see high gross or net profit
margins. However, these businesses are consistent and predictable allowing for high rates of growth. From FY 2014 to
FY 2015, gross margins slightly weakened from 18.2% to 17.3%. Operating margins decreased from 5.9% in the first
half of FY 2014 to 5.2%. The drop in margins was mainly due to the major acquisitions of Target pharmaceutical
business as well as Omnicare. The integration costs related to the acquisitions inflated the company's operating expenses
by over $100 million. Excluding the acquisition and integration expenses, the company's operating profit increased 6.5%
over the prior year quarter (Q2). Once CVS Health exploits the synergies of these acquisitions, it will improve overall
margins. The decline in gross margin was also due to continued reimbursement pressures. Gross margin was positively
impacted by the increase in GDR, as well as increased front store margins due to our continued rationalization of
promotional strategies and improved mix of the products that the company sold.

6. Fall, 2016
T e m p l e U n i v e r s i t y I n v e s t m e n t A s s o c i a t i o n : T h e F o x F u n d Page 6
Earnings
CVS Health has missed earning in Q1 and Q2 on FY 2016.
Although the official earnings numbers reflected a decrease from
the prior-year-periods, the news was not surprising or that
concerning. The negative comparisons stemmed from the costs
related to the acquisitions of Omnicare and Target’s in-store
pharmacies and clinics that took place in December of 2015. As
mentioned before, besides paying $542 million of debt and $114
million in interest expense during Q2 of FY 2016 compared to
Q2 of FY 2015, the company reported $81 million more in
integration costs related to these acquisitions. On a positive note,
non-GAAP earnings per share grew from $1.32 from $1.22 in the
prior year period, which exceeded investors’ expectations. Prior to Q1 & Q2 of FY 2016, CVS Health has surpassed
earnings expectations 17 out of last 18 periods with an average earnings surprise of 15.92%. Our sector has forecasted
EPS of $5.08 in FY 2016 (9.7% YoY growth) and $6.18 in FY 2017 (21.7% YoY growth). CVS Health has shown the
ability to consistently grow earnings and we are very bullish that the company will continue to do so going forward as it
continues to expand and see success in both of its segments.
Cash Flows
CVS reported cash flow from operations of $9.41 billion and free cash flow of $6.89 billion of in FY 2016. In FY 2015,
cash flow from operations and free cash flow of $8.41 billion and $6.05 billion respectively. This positive growth is due
to The impact by the Medicare Part D benefit design and changes in the composition of CVS membership. The
Medicare Part D standard benefit design results in coverage that varies with a member's cumulative annual out-of-pocket
costs. As a result, the PDP plan pay percentage or benefit ratio generally decreases and operating profit generally
increases as the year progresses. Cash flow from operating is forecasted to grow at an 9.14 % CAGR between FY 2015
and FY 2018. Free cash flow is forecasted to grow at a CAGR OF 13.74 % through FY 2018. CVS Target's 1,672
pharmacies across 47 states and will operate them through a store-within-a-store format, branded as CVS Pharmacy and
expect to open up to 20 new clinics in Target stores within the next three years. That’s drive cash flow from operations
higher
Shareholder Return
Pharmacy chains have outperformed the broader S&P 500 index in 2015. The stock for CVS Health has provided total
returns of 15.1% year-to-date. In comparison, peers Walgreens Boots Alliance, Rite Aid, and Diplomat Pharmacy have
provided returns of 24.9%, 14.2%, and 66.8% year-to-date. The S&P 500 Index and the S&P 500 Food and Staples
Retailing Index have provided returns of 1.6% and 3.5%, respectively, through July 27. CVS Health, Walgreens Boots
Alliance, and Rite Aid together constitute ~3% of the portfolio holdings of the SPDR S&P Retail ETF. CVS and
Walgreens Boots Alliance together constitute ~1.7% of the portfolio holdings of the iShares S&P 100 ETF.
Debt
CVS has a higher debt to equity ratio than Walgreens. In the last 5 years CVS debt ratio and debt to equity ratio has
increased while Walgreens has stayed the same. CVS took on more debt because they needed to buy more property and
plants. Walgreens has doubled CVS in plants and property thus CVS is taking more debt to reach Walgreens.

7. Fall, 2016
T e m p l e U n i v e r s i t y I n v e s t m e n t A s s o c i a t i o n : T h e F o x F u n d Page 7
VALUATION
Peer Group Analysis
Walgreens is a pharmaceutical retailer that offers prescription drugs, health and wellness products, health information
and photo services. The company operates three segments: Retail Pharmacy USA (71.4% of FY 2015 sales),
Pharmaceutical Wholesale (17.3% of FY 2015), and Retail Pharmacy International (11.3% FY 2015). Walgreen’s Retail
Pharmacy USA segment is the most comparable to CVS’s Retail/LTC segment, generating a higher revenue of $83.8
billion versus CVS Health’s $72.0 billion. Walgreens generated only $117.4 billion in net revenue compared to CVS
Health net revenue, derived from its two segments, of $153.3 billion in FY 2015.
Rite Aid is a drugstore chain retailer that operates 4,553 stores in all 50 states. As of FY 2016, Rite Aid generated a total
of $30.7 billion in net revenue, an increase of 15.9% from $26.5 billion in the prior year. Most of the revenue is
generated from Rite Aid’s Retail Pharmacy segment, constituting 87.4% in net revenue of FY 2016. The company
recently opened a new segment in Pharmacy Services, in comparison to CVS Health’s PBM operations. In October
2015, Rite Aid accepted a merger agreement from Walgreens, which is currently pending approval from governmental
regulators and its shareholders.
Undervaluation
CVS Health is currently trading at 18.21% discount to the company’s average three-year forward P/E multiple of 16.8x,
and a 6.67% discount to its average three-year historic EV/EBITDA multiple of 12.6x. Despite surpassing top line
expectations, CVS Health began trading at discount after it missed earnings projections in Q1 FY 2016. The earnings
reflected a negative YoY growth of 2.7% which was the direct result of costs related to the 2015 acquisitions of
Omnicare and Target's in-store pharmacies and clinics. The company also lowered its GAAP earnings guidance to $5.24
to $5.39 per diluted share from $5.28 to $5.43 per diluted share which contributed to the selloff. This subpar news
caused traders to sell off CVS Health 14.14% after the Q1 earnings call (P/E multiple from 21.8x to 18.8x). After a
quick price rebound in the days leading up to Q2 FY 2016 earnings call, traders once again started selling off the stock
following another earnings miss. The earnings miss reflected a negative YoY growth of 23.2% that resulted from paying
off $542 million of debt early, $114 million more in interest expense during the second quarter of 2016 versus the same
quarter last year due to the issuance of debt to fund its acquisitions of Target's pharmacies and Omnicare, and $81
million more in integration costs related to these acquisitions. Based on its second-quarter results, CVS Health also
revised guidance for full-year GAAP earnings per share to $4.92 to $5.00 from $5.24 to $5.39. This negative change
caused traders to sell off CVS Health 12.1% after the Q2 earnings call (P/E multiple from 19.8x to 17.4.8x). We believe
that management will continue to alleviate investors’ concerns over consecutive negative earnings growth after the Q3
conference call (November 8th) by proving strong revenue and earnings growth showing that the original selloff was
overblown and due to acquisitions related costs and that future growth prospects are not in jeopardy. The combination
of our valuation methodologies, strong Q3 earning results, and continued attractive top-line growth solidifies our
opinion that CVS is a value opportunity with favorable growth prospects.
Fair Value Calculations
To calculate a fair target price, we used two different valuation multiples/methodologies to see the various ranges of
target prices. Our sector calculated our fair value estimates using forward P/E and historical EV/EBITDA multiples.
Using consensus NTM EPS of $6.25 estimates with an average three-year forward P/E multiple of 16.8x we calculated a
fair value estimate of $105. Using consensus LTM EBITDA estimates of $12,386 million with an average one-year
historical EV/EBITDA multiple of 11.3x we calculated the fair value estimate of $98. Our sector decided to derive our
target price using the company’s average three-year forward P/E multiple of 16.8x, which calculates a fair value of $105,
implying CVS Health is trading 18.21% below its intrinsic value.

8. Fall, 2016
T e m p l e U n i v e r s i t y I n v e s t m e n t A s s o c i a t i o n : T h e F o x F u n d Page 8
APPENDIX
Exhibit I: Three-year price graph
Exhibit II: Three-year historical and forward P/E

9. Fall, 2016
T e m p l e U n i v e r s i t y I n v e s t m e n t A s s o c i a t i o n : T h e F o x F u n d Page 9
Exhibit III: Three-year historical and forward EV/EBITDA

10. Fall, 2016
T e m p l e U n i v e r s i t y I n v e s t m e n t A s s o c i a t i o n : T h e F o x F u n d Page 10
DISCLAIMER
This report is prepared strictly for educational purposes and should not be used as an actual investment guide.
The forward looking statements contained within are simply the author’s opinions. The writer does not own any
CVS Health Corporation stock.
TUIA STATEMENT
Established in honor of Professor William C. Dunkelberg, former Dean of the Fox School of Business, for his
tireless dedication to educating students in “real-world” principles of economics and business, the William C.
Dunkelberg (WCD) Owl Fund will ensure that future generations of students have exposure to a challenging,
practical learning experience. Managed by Fox School of Business graduate and undergraduate students with
oversight from its Board of Directors, the WCD Owl Fund’s goals are threefold:
• Provide students with hands-on investment management experience
• Enable students to work in a team-based setting in consultation with investment professionals.
• Connect student participants with nationally recognized money managers and financial institutions
Earnings from the fund will be reinvested net of fund expenses, which are primarily trading and auditing costs
and partial scholarships for student participants.