CVS Health Corporation (CVS) is a large integrated healthcare services provider with an $84 billion market cap.

The company operates in three segments:

• Pharmacy Services (pharmacy benefits manager)
• Retail/LTC Segment (prescription fulfillment and general merchandise sales)
• Healthcare Benefits Segment (health insurance)

The Pharmacy Services segment is a pharmacy benefits manager. The Retail/LTC segment provides prescription fulfillment services and general merchandise sales from the company’s 9,900 retail locations and 1,100 medical clinics. The Healthcare Benefits Segment primarily provides health and dental insurance.

The company posted strong second quarter results for fiscal 2020. As compared to the same quarter last year, revenue grew 3.0%, adjusted operating increased grew 32.2%, and adjusted EPS surged 39.7%.

CVS’ guidance for fiscal 2020 calls for adjusted EPS of $7.14 to $7.27. For comparison, the company’s adjusted EPS in 2015 were $5.16. If CVS hits the midpoint of its guidance this year it will have generated a compound annual growth rate in adjusted EPS of 6.9% annually which is reasonably good for a large blue-chip security.

The company currently has an above-average 3.1% dividend yield. Even if growth declines over the next 5 years to around 5.0% per year, CVS is poised to generate solid high single digit returns without a change in its valuation multiple.

And CVS stock looks cheap regarding valuation. The company’s stock is currently trading for a price-to-earnings ratio of just 9.1 using the median of expected fiscal 2020 adjusted earnings-per-share. The company’s 10-year historical average price-to-earnings ratio is 14.6 for comparison.

If valuation multiples revert to their historical averages, investors will realize a sizeable tailwind to their returns. With a wide network of convenient corner stores and a reasonably recession resistant business model coupled with an above-average dividend yield, CVS is a security that can be held without outsized worries while investors wait for the valuation multiple to increase. This may in part explain why Owl Creek Asset Management and other institutional investors hold positions in CVS.

It is notable that CVS has paid the same annual dividend of $2.00 per share since 2017. The company has not increased its dividend because it has chosen to instead pay down its debt.

CVS completed the $78 billion acquisition of Aetna in 2018. The deal saddled CVS with a large amount of debt which the company has been paying down since. Long-term debt jumped from $27 billion at the end of 2017 to $73 billion at the end of 2018 due to the acquisition. As of the second quarter of fiscal 2020, CVS still has $63.5 billion in long-term debt on its balance sheet.

In light of recent strong results, CVS has proven it can survive – and indeed thrive – even in a very difficult operating environment. Moreover, the stock is trading for a low price-to-earnings ratio and offers a compelling mix of reasonable safety (despite the high debt load), above-average yield, and solid growth prospects for an established blue-chip business.

Ben Reynolds is CEO of Sure Dividend. Sure Dividend helps individual investors build high quality dividend growth stock portfolios for the long run.