Berkshire requires a 25–50% discount to intrinsic value before buying.
Buffett Quality Checklist
✗ROE >15% consistently (≥7 of last 10 years)
✓Free cash flow positive (≥8 of last 10 years)
✓Conservative leverage — Debt/Equity below 1
✓Revenue growing at CAGR >5%
✗EPS growing at CAGR >5%
10-Year Financial History — SEC EDGAR 10-K Filings
Year▲
Revenue▲
Net Income▲
FCF▲
Owner Earnings▲
ROE▲
Net Margin▲
LT Debt▲
Cash▲
2016
$177.5B
$5.3B
$7.9B
$5.6B
14.4%
3.0%
$25.7B
$3.4B
2017
$184.8B
$6.6B
$6.1B
$7.2B
17.6%
3.6%
$27.0B
$1.7B
2018
$194.6B
-$594.0M
$6.8B
$87.0M
-1.0%
-0.3%
$73.4B
$4.1B
2019
$256.8B
$6.6B
$10.4B
$8.5B
10.4%
2.6%
$71.3B
$5.7B
2020
$268.7B
$7.2B
$13.4B
$9.2B
10.3%
2.7%
—
$7.9B
2021
$292.1B
$8.0B
$15.7B
$10.0B
10.7%
2.7%
—
$9.4B
2022
$322.5B
$4.3B
$13.4B
$5.8B
6.0%
1.3%
—
$12.9B
2023
$357.8B
$8.3B
$10.4B
$9.7B
10.9%
2.3%
—
$8.2B
2024
$372.8B
$4.6B
$6.3B
$6.4B
6.1%
1.2%
—
$8.6B
2025
$402.1B
$1.8B
$7.8B
$3.5B
2.4%
0.4%
—
$8.5B
Warren & Charlie
Buffett / Munger — quality, moat & valuation
CVS HEALTH Corp (CVS) — Investment Memo
🐂 The Bull Case (Warren's voice)
The Closed-Loop Monopoly: CVS isn't just a drugstore; it's a vertically integrated healthcare machine. By owning the payer (Aetna), the processor (Caremark), and the provider (Pharmacy/Oak Street), they capture the entire value chain. In a perfect world, they eliminate the "middleman" by being every middleman.
The FCF Engine: While Net Income is a disaster, Free Cash Flow remains stubbornly resilient at $7.8B. This suggests the business is a cash cow masked by accounting impairments and the "creative" depreciation of overpriced acquisitions. If you can ignore the GAAP noise, the cash is still flowing.
Scale as a Barrier: The sheer gravity of their $402.1B revenue stream makes them indispensable. They are too large for the government to dismantle without collapsing the drug delivery system of the United States.
The "Wait and See" Price: This becomes attractive only when the market treats it as a dying retail chain rather than a healthcare giant. We don't buy "hope" that management can fix ROE; we buy when the price reflects the worst-case scenario.
🐻 The Bear Case (Charlie inverts)
“Show me where I'll die and I won't go there.”
Scenario 1: The PBM Guillotine (Regulatory Stroke): The "toll bridge" moat is built on opaque PBM pricing and "spread pricing." If the FTC or Congress mandates transparent, pass-through pricing, the high-margin glue holding the vertical integration together dissolves. The moat isn't a castle; it's a legal loophole.
Scenario 2: The Retail Death Spiral: They are buying Rite Aid assets while the entire pharmacy retail model is being cannibalized by Amazon and squeezed by shrinking reimbursement rates. They are doubling down on a fading asset to mask the decay of the core.
Scenario 3: The Debt Trap: With $73.4B in debt and a plummeting ROE (now a pathetic 2.4%), they have lost the ability to compound capital. They are no longer investing for growth; they are borrowing to survive the inertia of their own size.
Most Likely Outcome: A slow, grinding decline in margins as regulatory pressure hits the PBM side and labor costs eat the retail side. Timeframe: 3–5 years of structural erosion.
💰 Valuation & Margin of Safety
The DCF suggests the market is hallucinating value that the cash flows don't support.
Intrinsic value estimate: $20.45 per share
25% margin of safety entry: $15.34(Conservative)
50% margin of safety entry: $10.23(Buffett's ideal)
Current Status: Expensive. If the stock is trading anywhere near $50–$70, the market is pricing in a "miracle recovery" that the ROE and NI trends flatly contradict.
Verdict: PASS
The business is a "diworsified" conglomerate buying revenue to hide a collapsing bottom line. We do not buy companies where the ROE has evaporated from 17% to 2%. The "closed loop" is a regulatory target, not a competitive advantage.
Research Notes· Money Model · Moat · Financials · Management
Data sourced from SEC EDGAR XBRL filings (10-K only). For educational purposes — not investment advice.