CVS Health Corporation (CVS) vs. NIKE, Inc. (NKE): Breaking Down the Health Care Plans Industry’s Two Hottest Stocks

CVS Health Corporation (NYSE:CVS) shares are down more than -9.30% this year and recently decreased -0.56% or -$0.37 to settle at $65.76. NIKE, Inc. (NYSE:NKE), on the other hand, is up 13.41% year to date as of 05/17/2018. It currently trades at $70.94 and has returned 4.45% during the past week.

CVS Health Corporation (NYSE:CVS) and NIKE, Inc. (NYSE:NKE) are the two most active stocks in the Health Care Plans industry based on today’s trading volumes. We will compare the two companies based on the strength of various metrics, including growth, profitability, risk, return, and valuation to determine if one is a better investment than the other.


Companies that can consistently grow earnings at a high compound rate usually have the greatest potential to create value for shareholders in the long-run. Analysts expect CVS to grow earnings at a 11.36% annual rate over the next 5 years. Comparatively, NKE is expected to grow at a 7.58% annual rate. All else equal, CVS’s higher growth rate would imply a greater potential for capital appreciation.

Profitability and Returns

Growth in and of itself is not necessarily valuable, and it can even be harmful to shareholders if companies overinvest in unprofitable projects in pursuit of that growth. We will use EBITDA margin and Return on Investment (ROI), which adjust for differences in capital structure, as measure of profitability and return. , compared to an EBITDA margin of 14.38% for NIKE, Inc. (NKE). CVS’s ROI is 9.90% while NKE has a ROI of 25.30%. The interpretation is that NKE’s business generates a higher return on investment than CVS’s.

Cash Flow

The value of a stock is simply the present value of its future free cash flows. CVS’s free cash flow (“FCF”) per share for the trailing twelve months was +1.34. Comparatively, NKE’s free cash flow per share was +0.14. On a percent-of-sales basis, CVS’s free cash flow was 0.74% while NKE converted 0.66% of its revenues into cash flow. This means that, for a given level of sales, CVS is able to generate more free cash flow for investors.

Liquidity and Financial Risk

Liquidity and leverage ratios are important because they reveal the financial health of a company. CVS has a current ratio of 2.40 compared to 2.70 for NKE. This means that NKE can more easily cover its most immediate liabilities over the next twelve months. CVS’s debt-to-equity ratio is 1.68 versus a D/E of 0.36 for NKE. CVS is therefore the more solvent of the two companies, and has lower financial risk.


CVS trades at a forward P/E of 9.09, a P/B of 1.73, and a P/S of 0.36, compared to a forward P/E of 26.45, a P/B of 11.76, and a P/S of 3.22 for NKE. CVS is the cheaper of the two stocks on an earnings, book value and sales basis. Given that earnings are what matter most to investors, analysts tend to place a greater weight on the P/E.

Analyst Price Targets and Opinions

Investors often compare a stock’s current price to an analyst price target to get a sense of the potential upside within the next year. CVS is currently priced at a -24.54% to its one-year price target of 87.15. Comparatively, NKE is -0.59% relative to its price target of 71.36. This suggests that CVS is the better investment over the next year.

Risk and Volatility

Beta is a metric that investors frequently use to analyze a stock’s systematic risk. A beta above 1 implies above average market volatility. Conversely, a stock with a beta below 1 is seen as less risky than the overall market. CVS has a beta of 0.97 and NKE’s beta is 0.64. NKE’s shares are therefore the less volatile of the two stocks.

Insider Activity and Investor Sentiment

Short interest, or the percentage of a stock’s tradable shares currently being shorted, is another metric investors use to get a pulse on sentiment. CVS has a short ratio of 4.94 compared to a short interest of 3.19 for NKE. This implies that the market is currently less bearish on the outlook for NKE.


CVS Health Corporation (NYSE:CVS) beats NIKE, Inc. (NYSE:NKE) on a total of 8 of the 14 factors compared between the two stocks. CVS is growing fastly, has higher cash flow per share and has a higher cash conversion rate. In terms of valuation, CVS is the cheaper of the two stocks on an earnings, book value and sales basis, CVS is more undervalued relative to its price target. Finally, C has better sentiment signals based on short interest.

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