Good afternoon Readers,
CVS Health proudly announced today, that they decided to use their expertise as a fiduciary to use their investors’ earnings to invest in $114 million dollars of affordable housing over the past year, instead of increasing the wages of their employees.
This is a 47 million dollar increase in funds used for this purpose, when compared to the prior year. I updated the DCF model to address this concern. Please note, I do not know if the housing is being used for J-1 Visas, or much detail at all about it. Below is the article I read.
The increased costs now noted in the model are estimations associated with the increases in wages paid to facilitate this endeavor. They include hiring the team necessary to partner with a large private equity firm capable of making an investment of this type, the costs of hiring these advisors, the accountant to inflate their Goodwill, and the team of marketers to tell everyone about it. The asset/revenue decreases compared to the previous assumptions, are:
· I overestimated the growth rate of their productive assets due to an underestimation of their 600-million-dollar promise to the Black Community. To adjust for this, I dialed down the controls on cells O4, P4, and Q4 of the Income Statement.
The assumptions made were largely based off the price action I priced today. I estimate, this announcement cost them over 80 cents a share.
Regarding the investment in the Black Community mentioned, I am assuming the housing is not being used for their employees. Also, almost all the costs passed on their investors associated with this decision were already priced into the model.
I would also like to reiterate; I do not hold a position in CVS Health. I was considering it as an inflation hedge due to its pharmacy, health insurance business, and liked its potential as a risk diversifying investment in a down market cycle. (“People will still need their drugs.”). I instead bought into Exxon Mobil this morning at 10 AM, as an inflation hedge with a stable balance sheet.
Warmest Regards,
Comments