CVS WACC - Weighted Average Cost of Capital
The WACC of CVS Health Corp (CVS) is 6.7%.
| Range | Selected | |
| Cost of equity | 7.1% - 10.4% | 8.75% |
| Tax rate | 25.3% - 25.6% | 25.45% |
| Cost of debt | 4.0% - 7.0% | 5.5% |
| WACC | 5.3% - 8.1% | 6.7% |
| Category | Low | High |
| Long-term bond rate | 3.9% | 4.4% |
| Equity market risk premium | 4.6% | 5.6% |
| Adjusted beta | 0.71 | 0.98 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 7.1% | 10.4% |
| Tax rate | 25.3% | 25.6% |
| Debt/Equity ratio | 0.76 | 0.76 |
| Cost of debt | 4.0% | 7.0% |
| After-tax WACC | 5.3% | 8.1% |
| Selected WACC | 6.7% | |
| Debt/Equity | Unlevered | |||
| Peers | Company Name | ratio | Beta | beta |
| CVS | CVS Health Corp | 0.76 | 0.57 | 0.36 |
| AMEH | Apollo Medical Holdings Inc | 0.11 | 1.21 | 1.12 |
| CI | Cigna Corp | 0.37 | 0.18 | 0.14 |
| DGX | Quest Diagnostics Inc | 0.32 | 0.28 | 0.22 |
| DVA | DaVita Inc | 0.88 | 0.6 | 0.36 |
| GH | Guardant Health Inc | 0.18 | 1.33 | 1.17 |
| LH | Laboratory Corporation of America Holdings | 0.29 | 0.35 | 0.29 |
| OPCH | Option Care Health Inc | 0.21 | 0.43 | 0.37 |
| SGFY | Signify Health Inc | 0.05 | 1.03 | 1 |
| TVTY | Tivity Health Inc | 0.23 | 1.95 | 1.66 |
| Low | High | |
| Unlevered beta | 0.36 | 0.62 |
| Relevered beta | 0.57 | 0.97 |
| Adjusted relevered beta | 0.71 | 0.98 |
CVS's CAPM model and how its cost of Equity is calculated
The Cost of Equity reflects the return a company needs to deliver to shareholders to justify the risk of investing in its shares. It’s computed using the Capital Asset Pricing Model (CAPM), which blends the risk-free rate, the stock’s beta, and the market risk premium.
This method evaluates the stock’s risk compared to a safe investment and the market’s overall volatility.
Here’s how we figure out the cost of equity for CVS:
cost_of_equity (8.75%) = risk_free_rate (4.15%) + equity_risk_premium (5.10%) * adjusted_beta (0.71) + risk_adjustments (0.25%)
We include the risk adjustments, which range from 0% to 1%, to keep our WACC conservatives, especially for companies traded in developing markets.