You can see below my original post on Berkshire board linked below. This is a quick take. Subsequent to my post, the stock has gently declined to $88. The 3 main thesis I put for CVS are:
- They will be able to spend $10 B on buybacks
- They will be able to reduce debt by $10 B
- They will be able to invest $10 on the business
Buybacks So far they have done $1.5 B in buybacks in 2022 and have another $2B accelerated buyback in works. Now they are scaling their buybacks to dilution + 1% ~ 2% share count reduction, taking mid-point you can expect about 20 million share purchases. Clearly, this is a reduction from their original guidance due to Oak street health purchase. Of course they have increased the dividend by 10%. So when the share price goes down companies find a way to increase dividend, instead of buying back more shares! I am sure they have a reason for that.
Debt reduction They modestly reduced debt, but they have an ability to hit the $10 B debt reduction goal by end of 2025. We need to see.
Invest in business You can always count on corporate America on empire building. They are buying OSH for $10 B cash. At least they are not issuing shares. So, the business is going to take more than $10 B, since they will make some additional investments in the next 2 to 3 years. Most likely they may end up with $6 to $7 B share buybacks and probably around that level of debt reduction.
Separately, OSH purchase means EPS hit between now and 2025, hopefully not an hit to their cash flow. I am yet to go over the annual results. For now, bit disappointed.
