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CVS Health Corp: CVS Health Earnings: Reducing Fair Value Estimate On Weak 2025 Guidance Shares Still Undervalued

As of February 28, 2025, CVS Health Corp's stock is priced at $65.72, significantly below its fair value estimate of $86.00, indicating it is undervalued. The company faces challenges in its Aetna medical insurance operations, leading to a reduction in its fair value estimate from $93.00 due to weaker profit expectations for 2025. Despite these challenges, CVS aims to leverage its diverse healthcare services to improve health outcomes and achieve mid to high single-digit growth in the long run.

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CVS Health Corp: CVS Health Earnings: Reducing Fair Value Estimate On Weak 2025 Guidance Shares Still Undervalued

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Morningstar Equity Analyst Report | Report as of 1 Mar 2025 05:37, UTC | Reporting Currency: USD | Trading Currency: USD

| Exchange: NEW YORK STOCK EXCHANGE, INC. Page 1 of 22

CVS Health Corp CVS QQQQ 28 Feb 2025 22:25, UTC

Last Price Fair Value Estimate Price/FVE Market Cap Economic MoatTM Equity Style Box Uncertainty Capital Allocation ESG Risk Rating Assessment1
65.72 USD 86.00 USD 0.76 82.86 USD Bil Narrow 1 Large Value Medium Standard ;;;;;
28 Feb 2025 12 Feb 2025 18:02, UTC 28 Feb 2025 5 Feb 2025 06:00, UTC

Price vs. Fair Value

Fair Value: 86.00

12 Feb 2025 18:02, UTC
98
Last Close: 65.72
83 Overvalued
Undervalued
68

38
2020 2021 2022 2023 2024 YTD
0.74 0.96 0.82 0.77 0.48 0.76 Price/Fair Value
-5.37 53.97 -7.53 -12.67 -39.78 47.88 Total Return %
Morningstar Rating

Total Return % as of 28 Feb 2025. Last Close as of 28 Feb 2025. Fair Value as of 12 Feb 2025 18:02, UTC.
Contents
Analyst Note (12 Feb 2025) CVS Health Earnings: Reducing Fair Value Estimate on Weak
Business Description
Business Strategy & Outlook (8 May 2024) 2025 Guidance; Shares Still Undervalued
Bulls Say / Bears Say (12 Feb 2025)
Analyst Note Julie Utterback, CFA, Senior Equity Analyst, 12 Feb 2025
Economic Moat (8 May 2024)
Fair Value and Profit Drivers (12 Feb 2025) CVS Health turned in solid fourth-quarter results, and its 2025 guidance for 6%-11% adjusted EPS
Risk and Uncertainty (8 May 2024) growth without any share repurchase activity appeared to relieve the market. Shares rose in the
Capital Allocation (12 Feb 2025) midteens on a percentage basis in early trading on this news.
Analyst Notes Archive
Financials Why it matters: With new management at the helm, the market appears to appreciate that further
ESG Risk deterioration in profits is unlikely in 2025.
Appendix
uHowever, the firm's 2025 guidance looks well below our profit and free cash flow estimates, as the
Research Methodology for Valuing Companies
firm may continue to struggle with ongoing challenges in Medicare Advantage, Medicaid, and
Important Disclosure
The conduct of Morningstar’s analysts is governed by Code of Ethics/Code of Medicare Part D related to a mismatch in rates and utilization.
Conduct Policy, Personal Security Trading Policy (or an equivalent of), and
Investment Research Policy. For information regarding conflicts of interest, please uGiven how weak CVS' 2024 performance was in its Aetna medical insurance operations, it may take
visit: http://global.morningstar.com/equitydisclosures.
multiple years to return to more normalized margins, particularly in Medicare Advantage. Positively,
The primary analyst covering this company does not own its stock.
management highlighted that it has $3-$4 of EPS upside if MA margins reach its target.
The ESG Risk Rating Assessment is a representation of Sustainalytics’ ESG Risk
1

Rating.
The bottom line: We are reducing our fair value estimate on narrow-moat CVS to $86 per share from
$93 previously to reflect the weaker expectations for 2025 and a slower turnaround thereafter, given
the challenges that CVS faces in its Aetna medical insurance operations in particular.

uWith weak expected profits at CVS, ROICs have fallen below WACC, and we currently place no value

© Morningstar 2025. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. The information, data, analyses and opinions ®
presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. The
opinions expressed are as of the date written and are subject to change without notice. Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or other losses resulting
ß
from, or related to, the information, data, analyses or opinions or their use. The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in part, or used in any manner,
without the prior written consent of Morningstar. Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research Services LLC, registered with and
governed by the U.S. Securities and Exchange Commission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869. Please see important disclosures at the end of this report.
Morningstar Equity Analyst Report | Report as of 1 Mar 2025 05:37, UTC | Reporting Currency: USD | Trading Currency: USD | Exchange: NEW YORK STOCK EXCHANGE, INC. Page 2 of 22

CVS Health Corp CVS QQQQ 28 Feb 2025 22:25, UTC

Sector Industry
on its narrow economic moat rating in our model.
d Healthcare Healthcare Plans
uHowever, we do assume significant improvement in CVS' profits and cash flows over time, including a
Business Description
return to a more normalized $10 billion in free cash flow generation after a particularly weak year
CVS Health offers a diverse set of healthcare services. Its
roots are in its retail pharmacy operations, where it expected in 2025 of around $4 billion.
operates over 9,000 stores primarily in the us. CVS is also
Coming up: In the next few months, we expect to hear more about Republican priorities for regulatory
a large pharmacy benefit manager (acquired through
changes in the industry. While headline risks create uncertainty, we think potential downside risks for
Caremark), processing about 2 billion adjusted claims
annually. It also operates a top-tier health insurer CVS profits are largely reflected in its heavily discounted shares.
(acquired through Aetna) where it serves about 26
million medical members. The company's recent Business Strategy & Outlook Julie Utterback, CFA, Senior Equity Analyst, 8 May 2024
acquisition of Oak Street adds primary care services to
CVS aims to be the most customer-centric health company in the United States and has spent over a
the mix, which could have significant synergies with all
its existing business lines. decade positioning itself as a managed care leader, with the acquisitions of pharmacy benefit manager
Caremark (2007), insurance provider Aetna (2018), and healthcare service provider Oak Street (2023)
defining its strategic direction. CVS' top-tier retail pharmacy, health insurer, and PBM franchises create
the potential to improve health outcomes and even bend the healthcare cost curve for its clients,
especially if it can align incentives by owning healthcare service providers, as well.

CVS appears uniquely positioned to improve health outcomes, and we appreciate management's focus
on better leveraging its assets through digital and other means to bring a more consumer-centric
approach to healthcare, which could provide many benefits. For example, a recent observational study
showed when members use both CVS medical and pharmacy benefits, their medical costs decline 3%-
6% over a three-year period through factors like fewer hospitalizations and emergency room visits.
Driving savings like that could be attractive to many potential clients, such as self-funded employers,
and CVS' own at-risk operations, like its Medicare Advantage plans, by reducing medical costs. Also,
CVS continues to dive further into healthcare services especially through recent acquisitions of primary-
care assets. We think the relatively high-margin healthcare services business could eventually
accelerate CVS' profit growth directly or by reducing long-term costs in its medical and pharmacy
benefit businesses.

With its integrated strategy, management aims to accelerate bottom-line growth to the mid to high
single digits in the long run, which we think is achievable after a tough 2024.

Bulls Say Julie Utterback, CFA, Senior Equity Analyst, 12 Feb 2025
u CVS' diverse operations create the opportunity to view a patient more holistically by managing both

medical and pharmacy benefits, which could lead to revenue and cost synergies for the organization.
u The firm's entry into provider services has the potential to improve returns for all of CVS' segments if it

can help patients more easily and cost-effectively manage chronic conditions through early intervention.
u CVS' PBM remains an industry leader due to its intense focus on pharmaceutical cost trends that should

continue to attract clients.

CVS Health Corp CVS QQQQ 28 Feb 2025 22:25, UTC

Competitors
CVS Health Corp CVS The Cigna Group CI Humana Inc HUM UnitedHealth Group Inc UNH

Fair Value Fair Value Fair Value Fair Value

86.00 357.00 400.00 590.00
Uncertainty : Medium Uncertainty : Medium Uncertainty : High Uncertainty : Medium

Last Close Last Close

Last Close Last Close
65.72 308.85 474.96
270.42

Economic Moat Narrow Narrow Narrow Narrow

Currency USD USD USD USD
Fair Value 86.00 12 Feb 2025 18:02, UTC 357.00 30 Jan 2025 16:41, UTC 400.00 11 Feb 2025 18:30, UTC 590.00 4 Dec 2024 17:33, UTC
1-Star Price 116.10 481.95 620.00 796.50
5-Star Price 60.20 249.90 240.00 413.00
Assessment Undervalued 28 Feb 2025 Undervalued 28 Feb 2025 Undervalued 28 Feb 2025 Undervalued 28 Feb 2025
Morningstar Rating QQQQ28 Feb 2025 22:25, UTC QQQQ28 Feb 2025 22:24, UTC QQQQ28 Feb 2025 22:21, UTC QQQQ28 Feb 2025 22:22, UTC
Julie Utterback, Senior Equity Julie Utterback, Senior Equity Julie Utterback, Senior Equity Julie Utterback, Senior Equity
Analyst
Analyst Analyst Analyst Analyst
Capital Allocation Standard Standard Standard Exemplary
Price/Fair Value 0.76 0.87 0.68 0.81
Price/Sales 0.22 0.36 0.28 1.10
Price/Book 1.10 2.06 1.99 4.69
Price/Earning 15.93 11.30 27.10 21.30
Dividend Yield 4.05% 1.81% 1.31% 1.72%
Market Cap 82.86 Bil 84.56 Bil 32.62 Bil 437.10 Bil
52-Week Range 43.56—80.75 262.03—370.83 213.31—406.46 436.38—630.73
Investment Style Large Value Large Value Mid Value Large Value

Bears Say Julie Utterback, CFA, Senior Equity Analyst, 12 Feb 2025
u Healthcare reform will likely remain a recurring political topic until universal, affordable coverage is

achieved in the US, and CVS' stock may experience volatility if scenarios that threaten its prospects gain
traction.
u Foot traffic at physical retail stores could continue to decline as consumers increasingly favor online

retailers, like Amazon, creating the need to reinvent its retail store footprint's operations.
u CVS' long-term profit growth prospects appear lower than its managed care peers primarily due to the

challenges it faces in its retail operations.

Economic Moat Julie Utterback, CFA, Senior Equity Analyst, 8 May 2024

CVS Health earns a narrow economic moat rating from us. As a top-tier medical insurer, pharmacy
benefit manager, and pharmacy retailer, we believe CVS possesses enough scale-related cost
© Morningstar 2025. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. The information, data, analyses and opinions ®
presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. The
opinions expressed are as of the date written and are subject to change without notice. Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or other losses resulting
ß
from, or related to, the information, data, analyses or opinions or their use. The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in part, or used in any manner,
without the prior written consent of Morningstar. Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research Services LLC, registered with and
governed by the U.S. Securities and Exchange Commission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869. Please see important disclosures at the end of this report.
Morningstar Equity Analyst Report | Report as of 1 Mar 2025 05:37, UTC | Reporting Currency: USD | Trading Currency: USD | Exchange: NEW YORK STOCK EXCHANGE, INC. Page 4 of 22

CVS Health Corp CVS QQQQ 28 Feb 2025 22:25, UTC

advantage and network effects to generate economic profits for the long run. Even after the late 2018
Aetna merger, which cut into returns on invested capital including goodwill, and its recent healthcare
services acquisitions, we estimate that CVS' ROICs should remain above its capital costs through most
of our explicit 10-year forecast period. CVS generates profits almost equally among its three major
segments, and we see the medical insurance and PBM assets as generally stronger than the retail store
chain, the latter of which likely does not have a moat surrounding it.

In medical insurance, we see two moat sources—cost advantage and network effects. An insurer’s cost
advantages relate primarily to scale, both broadly and locally. The legacy Aetna operations represent the
third-largest insurer that we cover, with about 26 million members, albeit a distant third in our coverage
universe behind UnitedHealth and Elevance. With such significant scale in the fragmented health
insurance market, we believe CVS benefits from local scale advantages in specific metropolitan markets.
Local scale advantages allow for greater negotiating leverage versus service providers than smaller
insurers in each community, which contributes to cost advantages in each specific location. Also, when
local scale advantages are significant enough, we think CVS’ insurance operations benefit from a
network effect. According to the American Medical Association, the share of local insurance markets in
the US that were highly concentrated grew to 75% in 2021 from 71% in 2014, with the leaders likely
taking share in those markets due to local market dynamics. For example, in communities where CVS
already has substantial market share, it can offer lower costs or more benefits per member to existing
and potential clients than its peers. If that offering is compelling enough, more employers will be
attracted to CVS’ insurance plans in those communities, and local service providers, such as hospitals
and physician groups, will have more incentive to join and offer lower prices to CVS’ insurance networks
to gain access to its large, growing membership rolls. As CVS’ local market share rises, its negotiating
leverage with providers also rises, which can create a virtuous cycle (a network effect) where CVS
attracts even more clients and more providers to its insurance network in that area. Overall, these
dynamics create barriers to entry for would-be competitors, as compiling an attractively priced provider
network in a new geography would be difficult without an established membership pool.

CVS’ Caremark segment provides PBM services and appears competitively advantaged in its own right
with a combination of moat sources. The PBM industry has consolidated into three top players—CVS,
UnitedHealth, and Cigna—controlling nearly 80% of US prescription volumes on an adjusted basis, and
we believe those players built those leadership positions on previous cost advantages. However, with
limited cost advantages over each other now, we see evidence of some switching costs (through
contracts) and network effects, although CVS' recent contract losses create some new uncertainty
around these moat sources, in our opinion. We believe CVS’ leadership position in its PBM operations
should help it generate excess returns over time. We continue to view the fixed-cost leverage
associated with processing about 2 billion of the nearly 7 billion adjusted prescriptions filled annually.
This consolidation of purchasing power helps CVS extract discounts from drug manufacturers on one

CVS Health Corp CVS QQQQ 28 Feb 2025 22:25, UTC

end of the transaction and pharmacies on the other end of the transaction, which helps create value for
its clients, such as insurance plans and employers, on their pharmacy cost trends. We see some
switching costs in this business with contract lengths typically around three years and annual retention
rates in the high 90s for all three of the top-tier PBM players. Switching the administrative activities,
partner relationships, and pharmacy benefit plan specifications to a new PBM vendor can be time-
consuming and onerous, which creates inertia for clients with limited realistic alternatives, in our
opinion. However, switching is possible, and the loss of specific clients could constrain the firm's growth
eventually, especially as new insurance competitors like Elevance, Amazon, and the Mark Cuban Cost
Plus Drug Company taking aim at this market.

CVS possesses a top-tier position in retail pharmacy stores that appears to have some positive qualities,
if not a moat. CVS drives significant volumes through over 9,000 pharmacy locations. This large store
network is attractive for pharmacy benefit managers when assembling plans to obtain volume-based
discounts from pharmaceutical manufacturers, and also assembling convenient retail store locations
that would be attractive to an insurance plan members. And while it trails Walgreens’ average revenue
per store, CVS’ average store revenue remains significantly higher than most other US pharmacies.
Scale allows CVS to leverage fixed costs (such as pharmacist salaries and rent) more effectively than
subscale peers, and both CVS and Walgreens continue to steal share from smaller independent
pharmacies. CVS, Walgreens, and Walmart also have advantageous relationships with the top US drug
distributors, which may give them a mild leg up over other retail pharmacies on generic drug pricing.
Beyond that, these retail store locations give CVS a unique asset that it may be able to leverage into
destinations for higher-margin healthcare services, like primary care.

In terms of environmental, social, and governance issues, our narrow-moat view of CVS is informed by
an analysis of potential changes to the US healthcare system. The key long-term ESG risk that CVS
faces, in our opinion, is how US strives to reach universal, affordable coverage. While some strategies
considered in recent years to reach universal coverage included eliminating the private insurance
industry, those plans have largely been rejected for more moderate proposals that build on the existing
healthcare system and include private insurers even in government-sponsored programs like Medicare
and Medicaid. During the next 10 years, we view scenarios where CVS provides medical and
pharmaceutical benefits through employers and government-sponsored programs (like Medicare
Advantage and Medicaid MCOs) as much more likely than not. And overall, since the 2020 election, the
impact of potential policy changes has been limited, and we suspect considered changes in the near
term, such as increased regulations on the PBM, will be manageable for CVS.

Fair Value and Profit Drivers Julie Utterback, CFA, Senior Equity Analyst, 12 Feb 2025

We are lowering our fair value estimate for CVS to $86 from $93 per share on a slower-than-previously-
anticipated turnaround ints its operations.
© Morningstar 2025. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. The information, data, analyses and opinions ®
presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. The
opinions expressed are as of the date written and are subject to change without notice. Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or other losses resulting
ß
from, or related to, the information, data, analyses or opinions or their use. The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in part, or used in any manner,
without the prior written consent of Morningstar. Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research Services LLC, registered with and
governed by the U.S. Securities and Exchange Commission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869. Please see important disclosures at the end of this report.
Morningstar Equity Analyst Report | Report as of 1 Mar 2025 05:37, UTC | Reporting Currency: USD | Trading Currency: USD | Exchange: NEW YORK STOCK EXCHANGE, INC. Page 6 of 22

CVS Health Corp CVS QQQQ 28 Feb 2025 22:25, UTC

CVS continues to face substantial challenges in its medical insurance operations, which is constraining
the company's intermediate-term outlook, and we continue to have questions about the long-term
prospects of its retail pharmacy operations. On a very weak 2024 base, we expect 5% revenue growth
on mid-single-digit growth in all of its segments, similar to US healthcare spending expectations. Also,
in 2024, CVS' profit margins declined substantially due to a significant mismatch in rates and medical
utilization, particularly in its Medicare Advantage business. With that weak 2024 as a base, we expect
significant margin improvement over time in the medical insurance oeprations, which drives our view
that adjusted EPS should grow about 10% compounded annually during the next five years.

We remain on the lookout for potential regulatory changes as well, particularly in its PBM operations.
While we suspect a low-single-digit profit headwind is the most likely outcome for potential regulations
on rebates and spreads in the PBM business, we recognize that more substantial regulations may create
more significant headwinds for CVS, if enacted.

Risk and Uncertainty Julie Utterback, CFA, Senior Equity Analyst, 8 May 2024

CVS faces medium uncertainty, including long-term efforts to derive synergies from acquisitions and the
debate around the US healthcare system that will likely continue until universal, affordable coverage is
achieved.

The Aetna merger and recent Oak Street acquisition pushed off durable double-digit earnings growth
for nearly a decade, which has been a source of frustration for investors still waiting for that industry
standard growth rate. Management has finally admitted defeat on this standard and recently
announced a significantly lower profit growth goal for the long run that recognizes the challenges the
firm faces particularly in its retail store operations.

Also, healthcare policy risks may plague managed care organizations like CVS until affordable, universal
coverage is achieved in the US, which is the key ESG risk facing this industry. The Medicare for All
policy debated in the 2020 Democratic primaries even called for the elimination of the private insurance
industry, which would have threatened the company's insurance operations. While that strategy was
largely rejected in favor of a more moderate approach, more progressive policies may emerge in future
election cycles. Also, we see headwinds emerging from potential regulations in the near term to
increase PBM transparency. Overall, long-term policy risks may remain intact until universal, affordable
coverage is reached in the US.

Capital Allocation Julie Utterback, CFA, Senior Equity Analyst, 12 Feb 2025

Our Capital Allocation Rating on CVS remains on the weak end of Standard, reflecting its weak balance
sheet management, mixed shareholder distributions, and fair investment strategy.

CVS' ongoing acquisitions represent the most significant constraint on its capital allocation rating.
© Morningstar 2025. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. The information, data, analyses and opinions ®
presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. The
opinions expressed are as of the date written and are subject to change without notice. Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or other losses resulting
ß
from, or related to, the information, data, analyses or opinions or their use. The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in part, or used in any manner,
without the prior written consent of Morningstar. Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research Services LLC, registered with and
governed by the U.S. Securities and Exchange Commission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869. Please see important disclosures at the end of this report.
Morningstar Equity Analyst Report | Report as of 1 Mar 2025 05:37, UTC | Reporting Currency: USD | Trading Currency: USD | Exchange: NEW YORK STOCK EXCHANGE, INC. Page 7 of 22

CVS Health Corp CVS QQQQ 28 Feb 2025 22:25, UTC

Specifically, CVS spent nearly two decades positioning itself as a managed care leader, with the
acquisitions of pharmacy benefit manager Caremark (2007), insurance provider Aetna (2018), and
healthcare service provider Oak Street (2023) defining its strategic direction. And while we think most of
the company's moves have made sense strategically, the prices and debt required to make them have
been high, in our opinion. For example, CVS has written down much of the value of Omnicare
acquisition (2015). Also, CVS also paid about double what we thought Aetna was worth prior to the
acquisition's announcement in late 2017. While we definitely see significant potential synergies
between these now combined organizations, returns on invested capital weakened after the merger,
and we continue to worry that CVS paid too much for the asset, especially considering its weak
execution in Medicare Advantage in recent years. Also, its early 2023 Oak Street acquisition initially
pushed off its double-digit earnings growth target yet again before management gave up altogether at
its December 2023 investor day. Overall, CVS' acquisition track record has been muddy at best.

Also, the debt that CVS takes on to make these acquisitions often constrains its ability to push cash out
to shareholders, which has been a recurring theme for the organization. Specifically, after the Aetna
acquisition in 2018, CVS took on such substantial financial leverage that its credit rating was cut and
shareholder distributions were severely limited through 2021. The 2023 acquisitions of Signify and Oak
Street are again tying its hands while executional errors in its Medicare Advantage business are
constraining its cash flows. So instead of purchasing shares while they are cheap, CVS has been forced
to focus on deleveraging and maintaining its dividend. Specifically, the company aims to maintain a
solidly investment-grade credit rating with leverage in the low to mid-3s in the long run. However, we
recognize that CVS missed an opportunity to repurchase shares at cheap levels after the Aetna
transaction and is repeating that pattern again in 2024-25 after its 2023 acquisitions.

Analyst Notes Archive

PBM Transparency Initiatives Included in New US Spending Bill Julie Utterback, CFA,Senior Equity
Analyst,18 Dec 2024

The US federal spending bill expected to pass this week includes pharmacy benefit manager
transparency efforts that eliminate rebate- and spread-based pricing benefits for PBMs.Why it matters:
Managed care organizations, which own the PBMs, face a mild headwind to their profits from this new
regulatory action. PBM clients currently use rebates and spread-based pricing mechanisms to
incentivize PBMs to negotiate bigger discounts in biopharmaceutical prices, but this new legislation
looks likely to force PBMs to pass those rebates and spreads on to clients. However, we expect PBMs to
replace those variable pricing mechanisms with fees to resolve most of that risk to profits. This should
result in the potential for a low-single-digit profit headwind for even the most exposed
MCO—Cigna—based on our estimates.The bottom line: We maintain our fair value estimates for
covered MCOs despite this legislation, because the potential profit headwinds are not enough to

CVS Health Corp CVS QQQQ 28 Feb 2025 22:25, UTC

materially affect our valuations. Our narrow moat ratings also remain intact, despite the increased risk
of regulation by Republicans in recent weeks that have caused shares to decline significantly. We think
shares are trading at moderate (Cigna, Centene, and UnitedHealth) to significant (CVS, Elevance, and
Humana) discounts to fair value.Coming up: Recent commentary from incoming Republican officials and
negative sentiment from the public in the wake of a UnitedHealth executive's killing suggest that the
MCOs should brace themselves for more potential policy changes. Republicans appear focused on
reducing federal spending on Medicaid expansion and the individual exchanges, while bipartisan
support of further PBM regulations or wasteful spending in Medicare Advantage would create more
profit risks. Mild positive offsets to those potential risks appear possible, though, in the form of
increased outsourcing of government programs to private insurers.

CVS Earnings: Reveals Full Extent of Weakness in Aetna Operations in Final Release of Q3 Results
Julie Utterback, CFA,Senior Equity Analyst,6 Nov 2024

After a preliminary announcement a few weeks ago including a CEO change, narrow-moat CVS Health
released its full third-quarter results that highlighted weakness in its Aetna medical insurance
operations. The earnings call also featured a first look at David Joyner in his new CEO role after
previously leading the Caremark pharmacy benefit management business. While CVS refrained from
giving guidance, at first glance, we are not changing our $93 fair value estimate. Shares remain cheap,
and investors should note that Republican Party election wins could ease pressures a bit on the
Medicare Advantage business that has roiled CVS' results so much in 2024.As expected after the
preliminary announcement, CVS delivered weak third-quarter results related to the ongoing mismatch in
rates and the elevated medical utilization in key markets, such as in Medicare Advantage and the
individual exchanges. The company delivered $1.09 of adjusted EPS, in line with the preliminary results
highlighted a few weeks ago but well below FactSet consensus of $1.69 prior to that preliminary
announcement. Because of the ongoing mismatch between rates and utilization in its medical insurance
membership, CVS had to take a premium deficiency reserve charge in the quarter worth about $0.63 per
share, as the firm's medical loss ratio spiked substantially to 95% from 86% a year ago. This segment's
weakness accounted for most of the company's 43% adjusted operating profit decline in the quarter.The
rest of CVS performed admirably. The healthcare services segment, which includes the PBM and
healthcare services operations, grew adjusted operating profits by 17%, as growth in healthcare
services and specialty pharmacy offset the loss of the Centene PBM contract. Even the retail pharmacy
stores looked strong with 15% adjusted operating profit growth on strong volume trends in a rising
medical utilization environment and improved drug purchasing dynamics, despite ongoing
reimbursement pressure.

Republican Party Win in US Election Could Ease Key Pressures in Managed-Care Industry Julie
Utterback, CFA,Senior Equity Analyst,6 Nov 2024

CVS Health Corp CVS QQQQ 28 Feb 2025 22:25, UTC

With the Republicans winning key federal electable bodies (White House and Senate at the time of
writing) in the US election, pressure on certain parts of the managed-care industry could ease a bit,
while other areas would still face scrutiny, but at this point, we're not changing any fair values.
Positively, the Republicans' leadership could mean less pressure on Medicare-focused insurers like
Humana and CVS Health, while antitrust scrutiny also could dissipate. Negatively, Medicaid and the
individual exchanges—two Centene strongholds—could see less support under the Republicans. Also,
we still view pharmacy benefit management transparency as a key concern for both major political
parties, but we expect potential legislation to be manageable for top-tier players like Cigna, CVS, and
UnitedHealth.Medicare Advantage is currently facing many regulatory challenges under the Democratic
Party leadership, including risk adjustments down toward traditional Medicare rates and weak star
ratings that promise to constrain future bonus payments. However, the switch to Republican leadership
could ease those pressures a bit, given the Republicans support these privatized plans for senior
citizens. At the very least, we would expect regulators to stop turning the screws so hard on Medicare
Advantage beyond current risk-adjustment initiatives that are projected to be completed in 2026, which
would bode well for M&A-focused insurers like Humana, CVS, and UnitedHealth.Also, the Republican
victories could grease the wheels of future M&As in the channel, which has almost been halted under
the Biden administration. The potential merger of Cigna and Humana could have a better chance of
success than under the Democrats, though we still see increasing claims concentration in the PBM
industry as a concern. Also, the combination of medical insurance and healthcare services firms may
face less scrutiny, which could bode well for UnitedHealth's diversified business model and any
imitators.

CVS: Makes Management Change Amid Underperformance at Aetna Julie Utterback, CFA,Senior
Equity Analyst,18 Oct 2024

Narrow-moat CVS Health made several announcements about a management shakeup, the firm's
direction, and recent results that disappointed the market. At first glance, we are not changing our $93
fair value estimate or our Standard Morningstar Capital Allocation Rating, although the latter remains at
the weak end of the category. Shares remain cheap.First, CVS announced that it has replaced CEO
Karen Lynch with CVS Caremark President David Joyner. We are not surprised by the management
change given the execution shortfalls at CVS, especially at the Aetna medical insurer that Lynch
previously led. However, investors may have been hoping for new blood from outside the
organization.Also prior to this announcement there were media reports about the potential breakup of
CVS, which we thought could have helped shareholders realize value in their long-underperforming CVS
shares, but with this news, a breakup announcement does not look imminent. The announcement also
appeared to lean into the value of the integrated business model that CVS currently operates. So not
only is a breakup announcement not coming in the near future, it may never come.Last, management
highlighted weaker-than-anticipated third-quarter results. Specifically, CVS provided preliminary
© Morningstar 2025. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. The information, data, analyses and opinions ®
presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. The
opinions expressed are as of the date written and are subject to change without notice. Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or other losses resulting
ß
from, or related to, the information, data, analyses or opinions or their use. The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in part, or used in any manner,
without the prior written consent of Morningstar. Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research Services LLC, registered with and
governed by the U.S. Securities and Exchange Commission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869. Please see important disclosures at the end of this report.
Morningstar Equity Analyst Report | Report as of 1 Mar 2025 05:37, UTC | Reporting Currency: USD | Trading Currency: USD | Exchange: NEW YORK STOCK EXCHANGE, INC. Page 10 of 22

CVS Health Corp CVS QQQQ 28 Feb 2025 22:25, UTC

adjusted EPS estimates of $1.05-$1.10 or well below FactSet consensus of $1.69. The announcement
pointed to a one-time charge that may be reversed in the fourth quarter worth about $0.63 per share,
which would have put third-quarter results more in line with expectations. However, CVS also
highlighted that its medical loss ratio spiked substantially and the guidance it had previously provided,
including EPS of $6.40-$6.60 in 2024 and double-digit earnings growth for 2025, should not be relied on
any longer. If near-term results look likely to be substantially lower than previous expectations, we may
need to adjust our fair value estimate somewhat, but we would still expect CVS shares to look materially
undervalued.

While the Election Looms, Near-Term Regulatory Risks Look Manageable for Managed-Care
Organizations Julie Utterback, CFA,Senior Equity Analyst,5 Sep 2024

Managed-care organizations face significant regulatory risks that often crop up during election cycles
and keep all our MCO moat ratings at narrow. Fortunately for MCO investors, the near-term regulatory
risks of this election cycle look manageable, in our opinion, despite current pockets of weakness in
Medicare Advantage, Medicaid, and pharmacy benefit management. Some of these near-term
regulatory risks are even creating opportunities for long-term MCO investors. For example, our Best Idea
in the industry is Humana, which continues to face uncertainty around its intermediate-term profit
trajectory in the highly regulated Medicare Advantage market. Medicaid and individual plan leader
Centene also looks undervalued while CVS' problems in Medicare Advantage and PBM transparency
concerns keep its shares deeply discounted. Cigna, Elevance, and UnitedHealth shares look fairly valued
to us.In our view, many recent industry headwinds look likely to ease in the intermediate term. First,
renewed Medicaid eligibility redeterminations that are cutting into that population and creating a
mismatch of rates and acuity in the remaining population should largely ease by the end of 2024. Also,
while recent regulatory actions may constrain Medicare Advantage plan growth through 2026,
Medicare Advantage growth will likely be stronger than other plan types for the next decade due to
demographic trends, increasing popularity versus traditional Medicare, and ongoing rate increases.
Additionally, the PBMs face regulatory scrutiny for their lack of transparency, but even if spread and
rebate-related pricing is eliminated, we expect the PBMs to switch most clients over to fee-based
arrangements to largely offset that potential headwind. Lastly, election cycles can create volatility in
MCO shares, but if mixed control of the federal government continues, then MCOs will likely enjoy a
relatively benign policy environment in the near term.

CVS Earnings: Surging Medical Utilization Cuts Into 2024 Outlook Again Julie Utterback, CFA,Senior
Equity Analyst,7 Aug 2024

Narrow-moat CVS Health delivered weak second-quarter results, primarily on deflated profits in
Medicare Advantage, where spiking medical utilization and mispriced plans caused profits to decline
substantially. Because this weakness may continue, management cut its 2024 guidance for the second
© Morningstar 2025. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. The information, data, analyses and opinions ®
presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. The
opinions expressed are as of the date written and are subject to change without notice. Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or other losses resulting
ß
from, or related to, the information, data, analyses or opinions or their use. The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in part, or used in any manner,
without the prior written consent of Morningstar. Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research Services LLC, registered with and
governed by the U.S. Securities and Exchange Commission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869. Please see important disclosures at the end of this report.
Morningstar Equity Analyst Report | Report as of 1 Mar 2025 05:37, UTC | Reporting Currency: USD | Trading Currency: USD | Exchange: NEW YORK STOCK EXCHANGE, INC. Page 11 of 22

CVS Health Corp CVS QQQQ 28 Feb 2025 22:25, UTC

time this year. However, changing our near-term estimates a bit does not materially affect our $93 fair
value estimate, and shares remain cheap relative to the firm's longer-term prospects, in our opinion.In
the quarter, operating profits contracted 16% as CVS continues to suffer as the MA enrollment winner
in 2024: Medical utilization is surging in that population, and CVS did not appropriately account for that
medical cost increase in its bids for 2024. In total, CVS' medical membership grew 5% year over year,
including growth of 27% in MA and 4% in commercial. Unfortunately, that strong MA growth has come
with consequences for CVS' profitability, including an inflated medical cost ratio and weak MA star
rating-related bonuses. Overall in the quarter, the insurance segment's operating profits dropped 39%
year over year, while pharmacy benefit manager and healthcare services profits remained about flat and
the retail store profits declined in the low-double digits.CVS cut its 2024 outlook again on this MA profit
weakness. CVS now expects only $6.40 to $6.60 of adjusted EPS in 2024, down from at least $7 most
recently and $8.30 originally. CVS also reduced its operating cash flow assumption for 2024 by a
midteens percentage. Going forward, the company is aiming for a multiyear improvement period to get
its MA business back to target markets. While management is still shooting for double-digit earnings
growth in 2025 off this weak base in 2024, the company's long-term outlook of 6% intermediate-term
adjusted EPS growth that accelerates to 7.5% by 2028 appears more indicative of its longer-term
prospects. K

CVS Health Corp CVS QQQQ 28 Feb 2025 22:25, UTC

Competitors Price vs. Fair Value

The Cigna Group CI

Fair Value: 357.00

30 Jan 2025 16:41, UTC
344
Last Close: 308.85
299 Overvalued
Undervalued
254

209

164
2020 2021 2022 2023 2024 YTD
0.87 0.81 1.03 0.87 0.72 0.87 Price/Fair Value
1.82 12.23 46.24 -8.14 -5.91 11.85 Total Return %
Morningstar Rating

Total Return % as of 28 Feb 2025. Last Close as of 28 Feb 2025. Fair Value as of 30 Jan 2025 16:41, UTC.

Humana Inc HUM

Fair Value: 400.00

11 Feb 2025 18:30, UTC
512
Last Close: 270.42
447 Overvalued
Undervalued
382

317

252
2020 2021 2022 2023 2024 YTD
1.04 0.96 1.00 0.83 0.60 0.68 Price/Fair Value
12.62 13.74 11.10 -9.93 -43.81 6.59 Total Return %
Morningstar Rating

Total Return % as of 28 Feb 2025. Last Close as of 28 Feb 2025. Fair Value as of 11 Feb 2025 18:30, UTC.

CVS Health Corp CVS QQQQ 28 Feb 2025 22:25, UTC

Competitors Price vs. Fair Value

UnitedHealth Group Inc UNH

Fair Value: 590.00

4 Dec 2024 17:33, UTC
548
Last Close: 474.96
473 Overvalued
Undervalued
398

323

248
2020 2021 2022 2023 2024 YTD
1.07 1.31 1.24 1.01 0.86 0.81 Price/Fair Value
20.93 44.79 6.86 0.68 -2.36 -6.11 Total Return %
Morningstar Rating

Total Return % as of 28 Feb 2025. Last Close as of 28 Feb 2025. Fair Value as of 4 Dec 2024 17:33, UTC.

CVS Health Corp CVS QQQQ 28 Feb 2025 22:25, UTC

Morningstar Historical Summary

Financials as of 31 Dec 2024
Fiscal Year, ends 31 Dec 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 YTD TTM
Revenue (USD Bil) 153 178 185 195 257 269 292 322 358 373 373 373
Revenue Growth % 10.0 15.8 4.1 5.3 32.0 4.7 8.7 10.4 11.0 4.2 4.2 4.2
EBITDA (USD Bil) 11.57 12.19 11.81 6.74 16.40 17.12 17.53 12.35 18.20 13.70 13.70 13.70
EBITDA Margin % 7.6 6.9 6.4 3.5 6.4 6.4 6.0 3.8 5.1 3.7 3.7 3.7
Operating Income (USD Bil) 9.48 10.39 9.72 10.17 12.22 13.91 15.10 16.29 14.60 9.80 9.80 9.80
Operating Margin % 6.2 5.9 5.3 5.2 4.8 5.2 5.2 5.1 4.1 2.6 2.6 2.6
Net Income (USD Mil) 5,237 5,317 6,622 -594 6,634 7,179 8,001 4,311 8,344 4,614 4,614 4,614
Net Margin % 3.4 3.0 3.6 -0.3 2.6 2.7 2.7 1.3 2.3 1.2 1.2 1.2
Diluted Shares Outstanding (Mil) 1,126 1,079 1,024 1,044 1,305 1,314 1,329 1,323 1,290 1,262 1,262 1,262
Diluted Earnings Per Share (USD) 4.63 4.90 6.44 -0.57 5.08 5.46 6.02 3.26 6.47 3.66 3.66 3.66
Dividends Per Share (USD) 1.40 1.70 2.00 2.00 2.00 2.00 2.00 2.20 2.42 2.66 2.66 2.66

Valuation as of 28 Feb 2025

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 Recent Qtr TTM
Price/Sales 0.7 0.5 0.4 0.4 0.4 0.3 0.5 0.4 0.3 0.2 0.2 0.2
Price/Earnings 22.1 16.9 15.0 21.6 22.2 11.3 18.0 39.4 12.1 11.4 11.4 18.0
Price/Cash Flow 13.4 7.5 7.4 10.7 7.4 6.0 7.7 5.6 7.3 12.4 12.4 9.1
Dividend Yield % 1.43 2.15 2.76 3.05 2.69 2.93 1.94 2.36 3.06 5.93 5.93 4.05
Price/Book 2.9 2.3 2.1 2.3 1.5 1.3 1.8 1.7 1.4 0.8 0.8 1.1
EV/EBITDA 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Operating Performance / Profitability as of 31 Dec 2024
Fiscal Year, ends 31 Dec 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 YTD TTM
ROA % 6.3 5.7 7.0 -0.4 3.2 3.2 3.5 1.9 3.5 1.8 1.8 1.8
ROE % 13.9 14.4 17.8 -1.2 10.9 10.8 11.1 5.9 11.3 6.1 6.1 6.1
ROIC % 10.0 9.3 11.6 1.3 6.2 6.1 6.5 4.1 6.9 4.3 4.3 4.3
Asset Turnover 1.8 1.9 1.9 1.3 1.2 1.2 1.3 1.4 1.5 1.5 1.5 1.5
Financial Leverage
Fiscal Year, ends 31 Dec 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 Recent Qtr TTM
Debt/Capital % 41.4 41.0 37.1 55.1 56.7 52.9 48.3 48.5 49.4 50.0 50.0 —
Equity/Assets % 40.2 39.0 39.6 29.6 28.7 30.1 32.2 31.3 30.6 29.8 29.8 —
Total Debt/EBITDA 2.4 2.3 2.3 10.9 5.4 5.0 4.3 5.7 4.4 6.1 6.1 —
EBITDA/Interest Expense 13.5 11.3 11.1 2.6 5.4 5.9 7.0 5.4 6.8 4.6 4.6 4.6

Morningstar Analyst Historical/Forecast Summary as of 12 Feb 2025

Financials Estimates Forward Valuation Estimates
2023 2024 2025 2026 2027
Fiscal Year, ends 31 Dec 2024 2023 2024 2025 2026 2027
Price/Sales 0.3 0.2 0.2 0.2 0.2
Revenue (USD Mil) 357,776 372,809 387,240 403,824 425,132 Price/Earnings 9.0 8.3 11.3 10.2 9.3
Revenue Growth % 11.0 4.2 3.9 4.3 5.3 Price/Cash Flow — — — — —
EBITDA (USD Mil) 22,018 16,684 17,395 17,851 18,532 Dividend Yield % 2.8 5.9 4.1 4.1 4.8
EBITDA Margin % 6.2 4.5 4.5 4.4 4.4 Price/Book 1.3 0.7 1.1 1.0 1.0
EV/EBITDA 7.5 7.8 8.9 8.7 8.4
Operating Income (USD Mil) 14,599 9,795 10,997 11,932 12,881
Operating Margin % 4.1 2.6 2.8 2.9 3.0
Net Income (USD Mil) 11,272 6,838 7,368 7,956 8,436
Net Margin % 3.2 1.8 1.9 2.0 2.0
Diluted Shares Outstanding (Mil) 1,290 1,262 1,262 1,239 1,196
Diluted Earnings Per Share(USD) 8.74 5.42 5.84 6.42 7.05
Dividends Per Share(USD) 2.18 2.66 2.66 2.66 3.16

CVS Health Corp CVS QQQQ 28 Feb 2025 22:25, UTC

ESG Risk Rating Breakdown

Exposure Subject Subindustry (35.0) u Exposure represents a company’s vulnerability to ESG

Company Exposure1 35.2 risks driven by their business model
35.2
u Exposure is assessed at the Subindustry level and then
– Manageable Risk 33.5 Medium
2 0 55+ specified at the company level
Unmanageable Risk 1.6
Low Medium High u Scoring ranges from 0-55+ with categories of low, me-

dium, and high-risk exposure

Management
u Management measures a company’s ability to manage
Manageable Risk 33.5 ESG risks through its commitments and actions
50.3%
– Managed Risk3 16.9 Strong
u Management assesses a company's efficiency on ESG

Management Gap4 16.7 100 0 programs, practices, and policies

Strong Average Weak u Management score ranges from 0-100% showing how

Overall Unmanaged Risk 18.3 much manageable risk a company is managing

ESG Risk Rating ESG Risk Rating Assessment5

18.27
Low

Negligible Low Medium High Severe ESG Risk Rating is of Feb 05, 2025. Highest Controversy Level is as of Feb 08,
2025. Sustainalytics Subindustry: Managed Health Care. Sustainalytics
ESG Risk Ratings measure the degree to which a company’s value is impacted by environmental, social, and governance provides Morningstar with company ESG ratings and metrics on a monthly
risks, by evaluating the company’s ability to manage the ESG risks it faces. basis and as such, the ratings in Morningstar may not necessarily reflect
current Sustainalytics’ scores for the company. For the most up to date rating
1. A company's Exposure to material ESG issues 2. Unmanageable Risk refers to risks that are inherent to a particular business model that cannot be managed by and more information, please visit: sustainalytics.com/esg-ratings/.
programs or initiatives 3. Managed Risk = Manageable Risk multiplied by a Management score of 50.3% 4. Management Gap assesses risks that are not
managed, but are considered manageable 5. ESG Risk Rating Assessment = Overall Unmanaged Risk = Management Gap plus Unmanageable Risk

Peer Analysis 05 Feb 2025 Peers are selected from the company's Sustainalytics-defined Subindustry and are displayed based on the closest market cap values
Company Name Exposure Management ESG Risk Rating

CVS Health Corp 35.2 | Medium 0 55+ 50.3 | Strong 100 0 18.3 | Low 0 40+

The Cigna Group 34.5 | Low 0 55+ 65.3 | Strong 100 0 13.0 | Low 0 40+

UnitedHealth Group Inc 34.1 | Low 0 55+ 54.0 | Strong 100 0 16.6 | Low 0 40+

Appendix
Historical Morningstar Rating
CVS Health Corp CVS 28 Feb 2025 22:25, UTC

Dec 2025 Nov 2025 Oct 2025 Sep 2025 Aug 2025 Jul 2025 Jun 2025 May 2025 Apr 2025 Mar 2025 Feb 2025 Jan 2025
- - - - - - - - - - QQQQ QQQQQ
Dec 2024 Nov 2024 Oct 2024 Sep 2024 Aug 2024 Jul 2024 Jun 2024 May 2024 Apr 2024 Mar 2024 Feb 2024 Jan 2024
QQQQQ QQQQQ QQQQQ QQQQQ QQQQQ QQQQQ QQQQQ QQQQQ QQQQQ QQQQ QQQQ QQQQ
Dec 2023 Nov 2023 Oct 2023 Sep 2023 Aug 2023 Jul 2023 Jun 2023 May 2023 Apr 2023 Mar 2023 Feb 2023 Jan 2023
QQQQ QQQQQ QQQQQ QQQQQ QQQQQ QQQQQ QQQQQ QQQQQ QQQQQ QQQQQ QQQQ QQQQ
Dec 2022 Nov 2022 Oct 2022 Sep 2022 Aug 2022 Jul 2022 Jun 2022 May 2022 Apr 2022 Mar 2022 Feb 2022 Jan 2022
QQQQ QQQQ QQQQ QQQQ QQQQ QQQQ QQQQ QQQQ QQQ QQQ QQQ QQQ
Dec 2021 Nov 2021 Oct 2021 Sep 2021 Aug 2021 Jul 2021 Jun 2021 May 2021 Apr 2021 Mar 2021 Feb 2021 Jan 2021
QQQ QQQ QQQ QQQQ QQQQ QQQ QQQ QQQ QQQQ QQQQ QQQQ QQQQ
Dec 2020 Nov 2020 Oct 2020 Sep 2020 Aug 2020 Jul 2020 Jun 2020 May 2020 Apr 2020 Mar 2020 Feb 2020 Jan 2020
QQQQ QQQQ QQQQQ QQQQQ QQQQQ QQQQQ QQQQ QQQQQ QQQQQ QQQQQ QQQQQ QQQQ

The Cigna Group CI 28 Feb 2025 22:24, UTC

Dec 2025 Nov 2025 Oct 2025 Sep 2025 Aug 2025 Jul 2025 Jun 2025 May 2025 Apr 2025 Mar 2025 Feb 2025 Jan 2025
- - - - - - - - - - QQQQ QQQQ
Dec 2024 Nov 2024 Oct 2024 Sep 2024 Aug 2024 Jul 2024 Jun 2024 May 2024 Apr 2024 Mar 2024 Feb 2024 Jan 2024
QQQQ QQQQ QQQQ QQQ QQQ QQQ QQQ QQQ QQQ QQQ QQQ QQQQ
Dec 2023 Nov 2023 Oct 2023 Sep 2023 Aug 2023 Jul 2023 Jun 2023 May 2023 Apr 2023 Mar 2023 Feb 2023 Jan 2023
QQQQ QQQQ QQQQ QQQQ QQQQ QQQQ QQQQ QQQQ QQQQ QQQQ QQQ QQQ
Dec 2022 Nov 2022 Oct 2022 Sep 2022 Aug 2022 Jul 2022 Jun 2022 May 2022 Apr 2022 Mar 2022 Feb 2022 Jan 2022
QQQ QQQ QQQ QQQ QQQ QQQ QQQQ QQQQ QQQ QQQQ QQQQ QQQQ
Dec 2021 Nov 2021 Oct 2021 Sep 2021 Aug 2021 Jul 2021 Jun 2021 May 2021 Apr 2021 Mar 2021 Feb 2021 Jan 2021
QQQQ QQQQ QQQQ QQQQ QQQQ QQQQ QQQQ QQQ QQQQ QQQQ QQQQ QQQ
Dec 2020 Nov 2020 Oct 2020 Sep 2020 Aug 2020 Jul 2020 Jun 2020 May 2020 Apr 2020 Mar 2020 Feb 2020 Jan 2020
QQQQ QQQQ QQQQ QQQQ QQQQ QQQQ QQQQ QQQQ QQQQ QQQQ QQQQ QQQQ

Humana Inc HUM 28 Feb 2025 22:21, UTC

Dec 2025 Nov 2025 Oct 2025 Sep 2025 Aug 2025 Jul 2025 Jun 2025 May 2025 Apr 2025 Mar 2025 Feb 2025 Jan 2025
- - - - - - - - - - QQQQ QQQQ
Dec 2024 Nov 2024 Oct 2024 Sep 2024 Aug 2024 Jul 2024 Jun 2024 May 2024 Apr 2024 Mar 2024 Feb 2024 Jan 2024
QQQQQ QQQQ QQQQQ QQQQQ QQQQ QQQQ QQQQ QQQQ QQQQQ QQQQ QQQQ QQQQ
Dec 2023 Nov 2023 Oct 2023 Sep 2023 Aug 2023 Jul 2023 Jun 2023 May 2023 Apr 2023 Mar 2023 Feb 2023 Jan 2023
QQQQ QQQ QQQ QQQQ QQQQ QQQQ QQQQ QQQ QQQ QQQQ QQQQ QQQ
Dec 2022 Nov 2022 Oct 2022 Sep 2022 Aug 2022 Jul 2022 Jun 2022 May 2022 Apr 2022 Mar 2022 Feb 2022 Jan 2022
QQQ QQQ QQQ QQQ QQQ QQQ QQQ QQQ QQQ QQQQ QQQQ QQQQ
Dec 2021 Nov 2021 Oct 2021 Sep 2021 Aug 2021 Jul 2021 Jun 2021 May 2021 Apr 2021 Mar 2021 Feb 2021 Jan 2021
QQQ QQQ QQQ QQQ QQQ QQQ QQQ QQQ QQQ QQQ QQQ QQQ
Dec 2020 Nov 2020 Oct 2020 Sep 2020 Aug 2020 Jul 2020 Jun 2020 May 2020 Apr 2020 Mar 2020 Feb 2020 Jan 2020
QQQ QQQ QQQ QQQ QQQ QQQ QQQ QQQ QQQ QQQQ QQQQ QQQ

UnitedHealth Group Inc UNH 28 Feb 2025 22:22, UTC

Dec 2025 Nov 2025 Oct 2025 Sep 2025 Aug 2025 Jul 2025 Jun 2025 May 2025 Apr 2025 Mar 2025 Feb 2025 Jan 2025
- - - - - - - - - - QQQQ QQQQ
Dec 2024 Nov 2024 Oct 2024 Sep 2024 Aug 2024 Jul 2024 Jun 2024 May 2024 Apr 2024 Mar 2024 Feb 2024 Jan 2024
QQQQ QQQ QQQ QQQ QQQ QQQ QQQ QQQ QQQ QQQ QQQ QQQ
Dec 2023 Nov 2023 Oct 2023 Sep 2023 Aug 2023 Jul 2023 Jun 2023 May 2023 Apr 2023 Mar 2023 Feb 2023 Jan 2023
QQQ QQQ QQ QQQ QQQ QQQ QQQ QQQ QQQ QQQ QQQ QQQ
Dec 2022 Nov 2022 Oct 2022 Sep 2022 Aug 2022 Jul 2022 Jun 2022 May 2022 Apr 2022 Mar 2022 Feb 2022 Jan 2022
QQ QQ QQ QQ QQ QQ QQ QQ QQ QQ QQ QQ
Dec 2021 Nov 2021 Oct 2021 Sep 2021 Aug 2021 Jul 2021 Jun 2021 May 2021 Apr 2021 Mar 2021 Feb 2021 Jan 2021
QQ QQ QQ QQ QQ QQ QQ QQ QQ QQ QQQ QQQ
Dec 2020 Nov 2020 Oct 2020 Sep 2020 Aug 2020 Jul 2020 Jun 2020 May 2020 Apr 2020 Mar 2020 Feb 2020 Jan 2020
QQQ QQ QQQ QQQ QQQ QQQ QQQ QQQ QQQ QQQQ QQQQ QQQ

Research Methodology for Valuing Companies

Overview turns on invested capital (or ROIC) over and above our es- rive our annual free cash flow forecast.
At the heart of our valuation system is a detailed projec- timate of a firm’s cost of capital, or weighted average
Stage II: Fade
tion of a company’s future cash flows, resulting from our cost of capital (or WACC). Without a moat, profits are
The second stage of our model is the period it will take
analysts’ research. Analysts create custom industry and more susceptible to competition. We have identified five
the company’s return on new invested capital—the re-
company assumptions to feed income statement, balance sources of economic moats: intangible assets, switching
turn on capital of the next dollar invested (“RONIC”)—to
sheet, and capital investment assumptions into our glob- costs, network effect, cost advantage, and efficient scale.
decline (or rise) to its cost of capital. During the Stage II
ally standardized, proprietary discounted cash flow, or
Companies with a narrow moat are those we believe are period, we use a formula to approximate cash flows in
DCF, modeling templates. We use scenario analysis, inde-
more likely than not to achieve normalized excess returns lieu of explicitly modeling the income statement, balance
pth competitive advantage analysis, and a variety of other
for at least the next 10 years. Wide-moat companies are sheet, and cash flow statement as we do in Stage I. The
analytical tools to augment this process. Moreover, we
those in which we have very high confidence that excess length of the second stage depends on the strength of
think analyzing valuation through discounted cash flows
returns will remain for 10 years, with excess returns more the company’s economic moat. We forecast this period to
presents a better lens for viewing cyclical companies,
likely than not to remain for at least 20 years. The longer last anywhere from one year (for companies with no eco-
high-growth firms, businesses with finite lives (e.g.,
a firm generates economic profits, the higher its intrinsic nomic moat) to 10–15 years or more (for wide-moat com-
mines), or companies expected to generate negative
value. We believe low-quality, no-moat companies will panies). During this period, cash flows are forecast using
earnings over the next few years. That said, we don’t dis-
see their normalized returns gravitate toward the firm’s four assumptions: an average growth rate for EBI over the
miss multiples altogether but rather use them as support-
cost of capital more quickly than companies with moats. period, a normalized investment rate, average return on
ing cross-checks for our DCF-based fair value estimates.
new invested capital (RONIC), and the number of years
We also acknowledge that DCF models offer their own
When considering a company's moat, we also assess until perpetuity, when excess returns cease. The invest-
challenges (including a potential proliferation of estim-
whether there is a substantial threat of value destruction, ment rate and return on new invested capital decline un-
ated inputs and the possibility that the method may miss
stemming from risks related to ESG, industry disruption, til a perpetuity value is calculated. In the case of firms
shortterm market-price movements), but we believe these
financial health, or other idiosyncratic issues. In this con- that do not earn their cost of capital, we assume marginal
negatives are mitigated by deep analysis and our
text, a risk is considered potentially value destructive if its ROICs rise to the firm’s cost of capital (usually attribut-
longterm approach.
occurrence would eliminate a firm’s economic profit on a able to less reinvestment), and we may truncate the
cumulative or midcycle basis. If we deem the probability second stage.
Morningstar’s equity research group (”we,” “our”) be-
lieves that a company’s intrinsic worth results from the of occurrence sufficiently high, we would not characterize
the company as possessing an economic moat. Stage III: Perpetuity
future cash flows it can generate. The Morningstar Rating
Once a company’s marginal ROIC hits its cost of capital,
for stocks identifies stocks trading at a discount or premi-
2. Estimated Fair Value we calculate a continuing value, using a standard per-
um to their intrinsic worth—or fair value estimate, in
Combining our analysts’ financial forecasts with the petuity formula. At perpetuity, we assume that any
Morningstar terminology. Five-star stocks sell for the
firm’s economic moat helps us assess how long returns growth or decline or investment in the business neither
biggest risk adjusted discount to their fair values, where-
on invested capital are likely to exceed the firm’s cost of creates nor destroys value and that any new investment
as 1-star stocks trade at premiums to their intrinsic worth.
capital. Returns of firms with a wide economic moat rat- provides a return in line with estimated WACC.
Four key components drive the Morningstar rating: (1) our ing are assumed to fade to the perpetuity period over a
longer period of time than the returns of narrow-moat Because a dollar earned today is worth more than a dollar
assessment of the firm’s economic moat, (2) our estimate
firms, and both will fade slower than no-moat firms, in- earned tomorrow, we discount our projections of cash
of the stock’s fair value, (3) our uncertainty around that
creasing our estimate of their intrinsic value. flows in stages I, II, and III to arrive at a total present
fair value estimate and (4) the current market price. This
value of expected future cash flows. Because we are
process ultimately culminates in our singlepoint star rat-
Our model is divided into three distinct stages: modeling free cash flow to the firm—representing cash
ing.
available to provide a return to all capital providers—we
discount future cash flows using the WACC, which is a
1. Economic Moat Stage I: Explicit Forecast
weighted average of the costs of equity, debt, and pre-
The concept of an economic moat plays a vital role not In this stage, which can last five to 10 years, analysts
ferred stock (and any other funding sources), using ex-
only in our qualitative assessment of a firm’s long-term make full financial statement forecasts, including items
pected future proportionate long-term, market-value
investment potential, but also in the actual calculation of such as revenue, profit margins, tax rates, changes in
weights.
our fair value estimates. An economic moat is a structural workingcapital accounts, and capital spending. Based on
feature that allows a firm to sustain excess profits over a these projections, we calculate earnings before interest,
3. Uncertainty Around That Fair Value Estimate
long period of time. We define economic profits as re- after taxes (EBI) and the net new investment (NNI) to de-
Morningstar’s Uncertainty Rating is designed to capture
the range of potential outcomes for a company’s intrinsic
Morningstar Equity Research Star Rating Methodology
value. This rating is used to assign the margin of safety
required before investing, which in turn explicitly drives
our stock star rating system. The Uncertainty Rating is
aimed at identifying the confidence we should have in as-
signing a fair value estimate for a given stock.

Our Uncertainty Rating is meant to take into account any-

thing that can increase the potential dispersion of future
outcomes for the intrinsic value of a company, and any-
© Morningstar 2025. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. The information, data, analyses and opinions ®
presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. The
opinions expressed are as of the date written and are subject to change without notice. Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or other losses resulting
ß
from, or related to, the information, data, analyses or opinions or their use. The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in part, or used in any manner,
without the prior written consent of Morningstar. Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research Services LLC, registered with and
governed by the U.S. Securities and Exchange Commission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869. Please see important disclosures at the end of this report.
Morningstar Equity Analyst Report | Report as of 1 Mar 2025 05:37, UTC | Reporting Currency: USD | Trading Currency: USD | Exchange: NEW YORK STOCK EXCHANGE, INC. Page 19 of 22

Research Methodology for Valuing Companies

thing that can affect our ability to accurately predict Morningstar Equity Research Star Rating Methodology
these outcomes. The rating begins with a suggested rat-
ing produced by a quantitative process based on the trail-
ing 12-month standard deviation of daily stock returns.
An analyst overlay is then applied, with analysts using
the suggested rating, historical rating data, and their own
knowledge of the company to inform them as they make
the final Uncertainty Rating decision. Ultimately, the rat-
ing decision rests with the analyst. Analysts take into ac-
count many characteristics when making their final de-
cision, including cyclical factors, operational and financial
factors such as leverage, company-specific events, ESG
risks, and anything else that might increase the potential
dispersion of future outcomes and our ability to estimate
those outcomes.

Our recommended margin of safety—the discount to fair

value demanded before we’d recommend buying or
selling the stock—widens as our uncertainty of the es-
timated value of the equity increases. The more uncertain
we are about the potential dispersion of outcomes, the
greater the discount we require relative to our estimate of
the value of the firm before we would recommend the
purchase of the shares. In addition, the Uncertainty Rat-
ing provides guidance in portfolio construction based on
risk tolerance. Once we determine the fair value estimate of a stock, we justed return is highly likely over a multiyear time frame.
compare it with the stock’s current market price on a Scenario analysis developed by our analysts indicates
Our Uncertainty Ratings are: Low, Medium, High, Very daily basis, and the star rating is automatically re-calcu- that the current market price represents an excessively
High, and Extreme. lated at the market close on every day the market on pessimistic outlook, limiting downside risk and maximiz-
which the stock is listed is open. Our analysts keep close ing upside potential.
Margin of Safety
tabs on the companies they follow, and, based on thor-
Qualitative Analysis
QRating ough and ongoing analysis, raise or lower their fair value QQQQ We believe appreciation beyond a fair risk-ad-
Uncertainty Ratings QQQQQRating
estimates as warranted. justed return is likely.
Low 20% Discount 25% Premium
Medium 30% Discount 35% Premium QQQ Indicates our belief that investors are likely to re-
Please note, there is no predefined distribution of stars.
High 40% Discount 55% Premium ceive a fair risk-adjusted return (approximately cost of
That is, the percentage of stocks that earn 5 stars can
Very High 50% Discount 75% Premium equity).
fluctuate daily, so the star ratings, in the aggregate, can
Extreme 75% Discount 300% Premium
serve as a gauge of the broader market’s valuation. When
there are many 5-star stocks, the stock market as a whole QQ We believe investors are likely to receive a less than
Our uncertainty rating is based on the interquartile range, fair risk-adjusted return.
is more undervalued, in our opinion, than when very few
or the middle 50% of potential outcomes, covering the
companies garner our highest rating.
25th percentile–75th percentile. This means that when a Q Indicates a high probability of undesirable risk-adjus-
stock hits 5 stars, we expect there is a 75% chance that ted returns from the current market price over a multiyear
We expect that if our base-case assumptions are true the
the intrinsic value of that stock lies above the current time frame, based on our analysis. Scenario analysis by
market price will converge on our fair value estimate over
market price. Similarly, when a stock hits 1 star, we ex- our analysts indicates that the market is pricing in an ex-
time generally within three years (although it is im-
pect there is a 75% chance that the intrinsic value of that cessively optimistic outlook, limiting upside potential and
possible to predict the exact time frame in which market
stock lies below the current market price. leaving the investor exposed to Capital loss.
prices may adjust).

4. Market Price Our star ratings are guideposts to a broad audience and Other Definitions
The market prices used in this analysis and noted in the individuals must consider their own specific investment Last Price: Price of the stock as of the close of the mar-
report come from exchange on which the stock is listed goals, risk tolerance, tax situation, time horizon, income ket of the last trading day before date of the report.
which we believe is a reliable source. needs, and complete investment portfolio, among other
factors. Capital Allocation Rating: Our Capital Allocation (or
For more details about our methodology, please go to Stewardship) Rating represents our assessment of the
https://shareholders.morningstar.com The Morningstar Star Ratings for stocks are defined be- quality of management’s capital allocation, with particu-
low: lar emphasis on the firm’s balance sheet, investments,
Morningstar Star Rating for Stocks QQQQQ We believe appreciation beyond a fair risk ad- and shareholder distributions. Analysts consider compan-
© Morningstar 2025. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. The information, data, analyses and opinions ®
presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. The
opinions expressed are as of the date written and are subject to change without notice. Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or other losses resulting
ß
from, or related to, the information, data, analyses or opinions or their use. The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in part, or used in any manner,
without the prior written consent of Morningstar. Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research Services LLC, registered with and
governed by the U.S. Securities and Exchange Commission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869. Please see important disclosures at the end of this report.
Morningstar Equity Analyst Report | Report as of 1 Mar 2025 05:37, UTC | Reporting Currency: USD | Trading Currency: USD | Exchange: NEW YORK STOCK EXCHANGE, INC. Page 20 of 22

Research Methodology for Valuing Companies

ies’ investment strategy and valuation, balance sheet starting at zero (no risk) with lower scores representing vice to any specific investor. Therefore, investments dis-
management, and dividend and share buyback policies. less unmanaged risk and, for 95% of cases, the unman- cussed herein may not be suitable for all investors; in-
Corporate governance factors are only considered if they aged ESG Risk score is below 50. vestors must exercise their own independent judgment as
are likely to materially impact shareholder value, though to the suitability of such investments and recommenda-
either the balance sheet, investment, or shareholder dis- Based on their quantitative scores, companies are tions in the light of their own investment objectives, ex-
tributions. Analysts assign one of three ratings: "Exem- grouped into one of five Risk Categories (negligible, low, perience, taxation status and financial position. Morning-
plary", "Standard", or "Poor". Analysts judge Capital Alloc- medium, high, severe). These risk categories are absolute, star encourages Report recipients to read all relevant is-
ation from an equity holder’s perspective. Ratings are de- meaning that a ‘high risk’ assessment reflects a compar- sue documents (e.g., prospectus) pertaining to the secur-
termined on a forward looking and absolute basis. The able degree of unmanaged ESG risk across all subindus- ity concerned, including without limitation, information
Standard rating is most common as most managers will tries covered. relevant to its investment objectives, risks, and costs be-
exhibit neither exceptionally strong nor poor capital alloc- fore making an investment decision and when deemed
ation. The ESG Risk Rating Assessment is a visual representa- necessary, to seek the advice of a financial, legal, tax,
tion of Sustainalytics ESG Risk Categories on a 1 to 5 and/or accounting professional. The information, data,
Capital Allocation (or Stewardship) analysis published pri- scale. Companies with Negligible Risk = 5 Globes, Low analyses and opinions presented herein are not warran-
or to Dec. 9, 2020, was determined using a different pro- Risk = 4, Medium Risk = 3 Globes, High Risk = 2 Globes, ted to be accurate, correct, complete or timely. Unless
cess. Beyond investment strategy, financial leverage, and Severe Risk = 1 Globe. For more information, please visit otherwise provided in a separate agreement, neither
dividend and share buyback policies, analysts also con- sustainalytics.com/esg-ratings/ Morningstar, Inc. or the Equity Research Group repres-
sidered execution, compensation, related party transac- ents that the report contents meet all of the presentation
tions, and accounting practices in the rating. Ratings should not be used as the sole basis in evaluating and/or disclosure standards applicable in the jurisdiction
a company or security. Ratings involve unknown risks and the recipient is located.
Capital Allocation Rating: Our Capital Allocation (or uncertainties which may cause our expectations not to
Stewardship) Rating represents our assessment of the occur or to differ significantly from what was expected Except as otherwise required by law or provided for in a
quality of management’s capital allocation, with particu- and should not be considered an offer or solicitation to separate agreement, the analyst, Morningstar, Inc. and
lar emphasis on the firm’s balance sheet, investments, buy or sell a security. the Equity Research Group and their officers, directors
and shareholder distributions. Analysts consider compan- and employees shall not be responsible or liable for any
ies’ investment strategy and valuation, balance sheet Risk Warning trading decisions, damages or other losses resulting from,
management, and dividend and share buyback policies. Please note that investments in securities are subject to or related to, the information, data, analyses or opinions
Corporate governance factors are only considered if they market and other risks and there is no assurance or guar- within the report.
are likely to materially impact shareholder value, though antee that the intended investment objectives will be
either the balance sheet, investment, or shareholder dis- achieved. Past performance of a security may or may not The Report and its contents are not directed to, or inten-
tributions. Analysts assign one of three ratings: "Exem- be sustained in future and is no indication of future per- ded for distribution to or use by, any person or entity who
plary", "Standard", or "Poor". Analysts judge Capital Alloc- formance. A security investment return and an investor’s is a citizen or resident of or located in any locality, state,
ation from an equity holder’s perspective. Ratings are de- principal value will fluctuate so that, when redeemed, an country or other jurisdiction where such distribution, pub-
termined on a forward looking and absolute basis. The investor’s shares may be worth more or less than their lication, availability or use would be contrary to law or
Standard rating is most common as most managers will original cost. A security’s current investment performance regulation or which would subject Morningstar, Inc. or its
exhibit neither exceptionally strong nor poor capital alloc- may be lower or higher than the investment performance affiliates to any registration or licensing requirements in
ation. noted within the report. Morningstar’s Uncertainty Rating such jurisdiction.
serves as a useful data point with respect to sensitivity
Capital Allocation (or Stewardship) analysis published pri- analysis of the assumptions used in our determining a fair Where this report is made available in a language other
or to Dec. 9, 2020, was determined using a different pro- value price. than English and in the case of inconsistencies between
cess. Beyond investment strategy, financial leverage, and the English and translated versions of the report, the Eng-
dividend and share buyback policies, analysts also con- lish version will control and supersede any ambiguities
sidered execution, compensation, related party transac- General Disclosure associated with any part or section of a report that has
tions, and accounting practices in the rating. been issued in a foreign language. Neither the analyst,
Unless otherwise provided in a separate agreement, re-
cipients accessing this report may only use it in the coun- Morningstar, Inc., or the Equity Research Group guaran-
Sustainalytics ESG Risk Rating Assessment:The ESG tees the accuracy of the translations.
try in which the Morningstar distributor is based. Unless
Risk Rating Assessment is provided by Sustainalytics; a
stated otherwise, the original distributor of the report is
Morningstar company. This report may be distributed in certain localities, coun-
Morningstar Research Services LLC, a U.S.A. domiciled
financial institution. tries and/or jurisdictions (“Territories”) by independent
Sustainalytics’ ESG Risk Ratings measure the degree to third parties or independent intermediaries and/or distrib-
which company’s economic value at risk is driven by en- utors (“Distributors”). Such Distributors are not acting as
This Report is for informational purposes, should not be
vironment, social and governance (ESG) factors. agents or representatives of the analyst, Morningstar,
the sole piece of information used in making an invest-
ment decision, and has no regard to the specific invest- Inc. or the Equity Research Group. In Territories where a
Sustainalytics analyzes over 1,300 data points to assess a Distributor distributes our report, the Distributor is solely
ment objectives, financial situation or particular needs of
company’s exposure to and management of ESG risks. In responsible for complying with all applicable regulations,
any specific recipient. This publication is intended to
other words, ESG Risk Ratings measures a company’s un- laws, rules, circulars, codes and guidelines established by
provide information to assist investors in making their
managed ESG Risks represented as a quantitative score. local and/or regional regulatory bodies, including laws in
own investment decisions, not to provide investment ad-
Unmanaged Risk is measured on an open-ended scale
© Morningstar 2025. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. The information, data, analyses and opinions ®
presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. The
opinions expressed are as of the date written and are subject to change without notice. Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or other losses resulting
ß
from, or related to, the information, data, analyses or opinions or their use. The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in part, or used in any manner,
without the prior written consent of Morningstar. Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research Services LLC, registered with and
governed by the U.S. Securities and Exchange Commission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869. Please see important disclosures at the end of this report.
Morningstar Equity Analyst Report | Report as of 1 Mar 2025 05:37, UTC | Reporting Currency: USD | Trading Currency: USD | Exchange: NEW YORK STOCK EXCHANGE, INC. Page 21 of 22

Research Methodology for Valuing Companies

connection with the distribution third-party research re- on an arms’ length basis including software products distribution in New Zealand to wholesale clients only and
ports. and licenses, research and consulting services, data has not been prepared for use by New Zealand retail cli-
services, licenses to republish our ratings and research ents (as those terms are defined in the Financial Markets
Conflicts of Interest in their promotional material, event sponsorship and Conduct Act 2013).The information, views and any recom-
u No interests are held by the analyst with respect to the website advertising. mendations in this material are provided for general in-
security subject of this investment research report. formation purposes only, and solely relate to the compan-
u Morningstar, Inc. may hold a long position in the se- Further information on Morningstar, Inc.’s conflict of in- ies and investment opportunities specified within. Our re-
curity subject of this investment research report that terest policies is available from http://global.morning- ports do not take into account any particular investor’s
exceeds 0.5% of the total issued share capital of the star.com/equitydisclosures. Also, please note analysts financial situation, objectives or appetite for risk, meaning
security. To determine if such is the case, please click are subject to the CFA Institute’s Code of Ethics and no representation may be implied as to the suitability of
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star.com vestor. We recommend seeking financial advice before
u Analysts’ compensation is derived from Morningstar, Risk Warning Please note that investments in securities making any investment decision.
Inc.’s overall earnings and consists of salary, bonus are subject to market and other risks and there is no as-
and in some cases restricted stock. surance or guarantee that the intended investment ob- For recipients in Hong Kong: The Report is distributed
u Neither Morningstar, Inc. or the Equity Research Group jectives will be achieved. Past performance of a security by Morningstar Investment Management Asia Limited,
receives commissions for providing research nor do may or may not be sustained in future and is no indica- which is regulated by the Hong Kong Securities and Fu-
they charge companies to be rated. tion of future performance. A security’s investment return tures Commission to provide services to professional in-
u Morningstar’s overall earnings are generated in part by and an investor's principal value will fluctuate so that, vestors only. Neither Morningstar Investment Manage-
the activities of the Investment Management and Re- when redeemed, an investor's shares may be worth more ment Asia Limited, nor its representatives, are acting or
search groups, and other affiliates, who provide ser- or less than their original cost. A security's current invest- will be deemed to be acting as an investment profession-
vices to product issuers. ment performance may be lower or higher than the in- al to any recipients of this information unless expressly
u Morningstar employees may not pursue business and vestment performance noted within the report. For invest- agreed to by Morningstar Investment Management Asia
employment opportunities outside Morningstar within ments in foreign markets there are further risks, generally Limited.
the investment industry (including but not limited to, based on exchange rate changes or changes in political
working as a financial planner, an investment profes- and social conditions. For recipients in India: This investment research is is-
sional or investment professional representative, a sued by Morningstar Investment Adviser India Private
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reporter, or analyst) without the approval of Morning- please visit global.morningstar.com/equitydisclosures Limited is registered with SEBI as a Portfolio Manager (re-
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u Neither Morningstar, Inc. or the Equity Research Group For a list of securities which the Equity Research Group tity (registration number INH000008686). Morningstar In-
is a market maker or a liquidity provider of the security currently covers and provides written analysis on please vestment Adviser India Private Limited has not been the
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u Neither Morningstar, Inc. or the Equity Research Group torical analysis of securities covered, including their fair al/regulatory body. Morningstar Investment Adviser India
has been a lead manager or co-lead manager over the value estimate, please contact your local office. Private Limited is a wholly owned subsidiary of Morning-
previous 12-months of any publicly disclosed offer of star Investment Management LLC. In India, Morningstar
financial instruments of the issuer. For recipients in Australia: This Report has been issued Investment Adviser India Private Limited has one asso-
u Morningstar, Inc.’s investment management group and distributed in Australia by Morningstar Australasia ciate, Morningstar India Private Limited, which provides
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provide portfolio management/investment advice some star Australasia Pty Ltd is the provider of the general ad- ware development. The research analyst has not served
of which an analyst may issue investment research re- vice (‘the Service’) and takes responsibility for the produc- as an officer, director, or employee of the fund company
ports on. However, analysts do not have authority over tion of this report. The Service is provided through the re- within the last 12 months, nor have they or their asso-
Morningstar’s investment management group’s busi- search of investment products. ciates engaged in market-making activity for the fund
ness arrangements nor allow employees from the in- company.The ESG-related information, methodologies,
vestment management group to participate or influ- To the extent the Report contains general advice it has tool, ratings, data and opinions contained or reflected
ence the analysis or opinion prepared by them. been prepared without reference to an investor’s object- herein are not directed to or intended for use or distribu-
u Morningstar, Inc. is a publicly traded company (Ticker ives, financial situation or needs. Investors should con- tion to India-based clients or users and their distribution
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Research Methodology for Valuing Companies

vestment Adviser India Private Limited offers Investment

Research to clients, varies from client to client, and are
detailed in the respective client agreement.

For recipients in Japan: The Report is distributed by Ib-

botson Associates Japan, Inc., which is regulated by Fin-
ancial Services Agency, for informational purposes only.
Neither Ibbotson Associates Japan, Inc., nor its repres-
entatives, are acting or will be deemed to be acting as an
investment professional to any recipients of this informa-
tion.

For recipients in Singapore: For Institutional Investor

audiences only. The Report is distributed by Morningstar
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provide financial advisory services in Singapore. Morning-
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search services described in this presentation. Investors
should consult a financial adviser regarding the suitability
of any investment product, taking into account their spe-
cific investment objectives, financial situation or particu-
lar needs, before making any investment decisions.

For recipients in Korea: The report is distributed by

Morningstar Korea Ltd., which has filed to the Financial
Services Committee, for informational purposes only.
Neither Morningstar Korea Ltd. nor its representatives are
acting or will be deemed to be acting as an investment
advisor to any recipients of this information.

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CVS Health Corp: CVS Health Earnings: Reducing Fair Value Estimate On Weak 2025 Guidance Shares Still Undervalued

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CVS Health Corp: CVS Health Earnings: Reducing Fair Value Estimate On Weak 2025 Guidance Shares Still Undervalued

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Morningstar Equity Analyst Report | Report as of 1 Mar 2025 05:37, UTC | Reporting Currency: USD | Trading Currency: USD

| Exchange: NEW YORK STOCK EXCHANGE, INC. Page 1 of 22

CVS Health Corp CVS QQQQ 28 Feb 2025 22:25, UTC

Price vs. Fair Value

Fair Value: 86.00

CVS Health Corp CVS QQQQ 28 Feb 2025 22:25, UTC

continue to attract clients.

CVS Health Corp CVS QQQQ 28 Feb 2025 22:25, UTC

Fair Value Fair Value Fair Value Fair Value

Last Close Last Close

Economic Moat Narrow Narrow Narrow Narrow

challenges it faces in its retail operations.

CVS Health Corp CVS QQQQ 28 Feb 2025 22:25, UTC

CVS Health Corp CVS QQQQ 28 Feb 2025 22:25, UTC

CVS Health Corp CVS QQQQ 28 Feb 2025 22:25, UTC

CVS Health Corp CVS QQQQ 28 Feb 2025 22:25, UTC

Analyst Notes Archive

CVS Health Corp CVS QQQQ 28 Feb 2025 22:25, UTC

CVS Health Corp CVS QQQQ 28 Feb 2025 22:25, UTC

CVS Health Corp CVS QQQQ 28 Feb 2025 22:25, UTC

CVS Health Corp CVS QQQQ 28 Feb 2025 22:25, UTC

CVS Health Corp CVS QQQQ 28 Feb 2025 22:25, UTC

Competitors Price vs. Fair Value

The Cigna Group CI

Fair Value: 357.00

Humana Inc HUM

Fair Value: 400.00

CVS Health Corp CVS QQQQ 28 Feb 2025 22:25, UTC

Competitors Price vs. Fair Value

UnitedHealth Group Inc UNH

Fair Value: 590.00

CVS Health Corp CVS QQQQ 28 Feb 2025 22:25, UTC

Morningstar Historical Summary

Valuation as of 28 Feb 2025

Morningstar Analyst Historical/Forecast Summary as of 12 Feb 2025

CVS Health Corp CVS QQQQ 28 Feb 2025 22:25, UTC

ESG Risk Rating Breakdown

Exposure Subject Subindustry (35.0) u Exposure represents a company’s vulnerability to ESG

dium, and high-risk exposure

Management Gap4 16.7 100 0 programs, practices, and policies

Overall Unmanaged Risk 18.3 much manageable risk a company is managing

ESG Risk Rating ESG Risk Rating Assessment5

The Cigna Group CI 28 Feb 2025 22:24, UTC

Humana Inc HUM 28 Feb 2025 22:21, UTC

UnitedHealth Group Inc UNH 28 Feb 2025 22:22, UTC

Research Methodology for Valuing Companies

Our Uncertainty Rating is meant to take into account any-

Research Methodology for Valuing Companies

Our recommended margin of safety—the discount to fair

Research Methodology for Valuing Companies

Research Methodology for Valuing Companies

Research Methodology for Valuing Companies

vestment Adviser India Private Limited offers Investment

For recipients in Japan: The Report is distributed by Ib-

For recipients in Singapore: For Institutional Investor

For recipients in Korea: The report is distributed by

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