[Updated: Nov 22, 2021] CVS Stock Update
The stock price of CVS Health (NYSE: CVS) rose 3% yesterday after the company announced that it will close 900 of its stores, reflecting 9% of its total stores in the U.S.  The company will focus on adding primary care offerings at some of its existing stores, and maintain traditional stores that offer prescription services. The company will also have stores that offer a wider range of healthcare services. With Amazon and Walmart venturing into the pharmacy business, there was a need for companies such as CVS and Walgreens to think over their long-term strategy, and the health care services is something they have been focusing on. With the pandemic, there has been a shift in consumer behavior, with people preferring online filling of prescriptions, and rise in tele-health services. CVS is now looking forward to offering primary care services at a higher number of stores, and this appears to be a step in the right direction. The company will record a one-time impairment charge of a little over $1.0 billion in Q4 this year for its planned store closures.
Now, is CVS stock poised to see higher levels or is a fall imminent? Based on our machine learning analysis of trends in the stock price over the last ten years, there is a higher chance of a rise in CVS stock in the near term. See our analysis on CVS Health Stock Return for more details.
1D: CVS 2.8%, vs. S&P500 0.3%; Outperformed market
(2% likelihood event; 51% probability of rise tomorrow)
- CVS Health stock rose 2.8% on 11/18/2021, compared to broader market (S&P500) rise of 0.3%
- A change of 2.8% or more over 1 trading day is a 2% likelihood event, which has occurred 55 times out of 2516 in the last 10 years
- Of these 55 instances, the stock has seen a positive movement on the very next trading day on 28 occasions
- This points to a 51% probability for the stock rising over trading tomorrow
5D: CVS 1.2%, vs. S&P500 1.3%; Underperformed market
(40% likelihood event; 53% probability of rise over next 5 days)
- CVS Health stock rose 1.2% over the last five trading days (one week), compared to broader market (S&P500) rise of 1.3%
- A change of 1.2% or more over five trading days (one week) is a 40% likelihood event, which has occurred 995 times out of 2516 in the last 10 years
- Of these 995 instances, the stock has seen a positive movement over the next five trading days on 530 occasions
- This points to a 53% probability for the stock rising over the next five trading days
21D: CVS 10%, vs. S&P500 3.8%; Outperformed market
(6% likelihood event; 56% probability of rise over next 21 days)
- CVS Health stock rose 10% the last twenty-one trading days (one month), compared to broader market (S&P500) rise of 3.8%
- A change of 10% or more over twenty-one trading days is a 6% likelihood event, which has occurred 142 times out of 2516 in the last 10 years
- Of these 142 instances, the stock has seen a positive movement over the next twenty-one trading days on 79 occasions
- This points to a 56% probability for the stock rising over the next twenty-one trading days
[Updated: Nov 8, 2021] CVS Stock Rise
The stock price of CVS Health (NYSE: CVS) has seen a rise of 11% over the last month, while it is up 7% over the last ten days. The recent rise can be attributed to its upbeat Q3 results. The company’s Q3 revenue of $73.8 billion was up 10% y-o-y and comfortably above our estimate of $70.6 billion. The revenue growth was driven by increased prescription volume and from Covid-19 vaccination and testing administration. CVS’ bottom line of $1.97 on a per share and adjusted basis was up 19% y-o-y, and well above our estimate of $1.81. Following a solid Q3, CVS revised its full-year 2021 outlook upward with revenue now estimated to be around $288 billion and EPS to be $7.95, at mid-point of their range. This compares with the company’s prior guidance of $283 billion and $7.75, respectively. This has boded well with the investors, evident from the nearly 6% rise in CVS stock in a single trading session on Nov 3, following its earnings announcement.
But now that CVS stock has seen a rise of 11% over the last month or so, will it continue its upward trajectory, or is a fall imminent? Going by historical performance, there is a higher chance of a rise in CVS stock over the next month. Out of 120 instances in the last ten years that CVS stock saw a twenty-one day rise of 11% or more, 64 of them resulted in CVS stock rising over the subsequent one-month period (twenty-one trading days). This historical pattern reflects 64 out of 120, or about a 53% chance of a rise in CVS stock over the coming month. See our analysis on CVS Health Stock Chance of Rise for more details. That said, 53% chance is surely not a great figure to bet on. Furthermore, going by our updated CVS Health Valuation of $99 per share, based on $8.00 expected adjusted EPS and maintaining a 12x P/E multiple for 2021, there is only 5% upside for CVS stock from its current level of around $94. As such, we believe that it may be prudent to wait for a correction to enter into CVS stock for better gains.
Calculation of ‘Event Probability‘ and ‘Chance of Rise‘ using last ten years data
- After moving 4% or more over a five-day period, the stock rose in the next five days on 47% of the occasions.
- After moving 7% or more over a ten-day period, the stock rose in the next ten days on 48% of the occasions
- After moving 11% or more over a twenty-one-day period, the stock rose in the next twenty-one days on 53% of the occasions.
CVS Health Stock Return (Recent) Comparison With Peers
- Five-Day Return: WBA highest at 6.1%; TGT lowest at -1.4%
- Ten-Day Return: CVS highest at 7.0%; TGT lowest at -2.3%
- Twenty-One Day Return: CVS highest at 11.2%; WBA lowest at 6.0%
[Updated: Nov 2, 2021] CVS Q3 Earnings Preview
CVS Health (NYSE: CVS) is scheduled to report its Q3 2021 results on Wednesday, Nov 3. We expect the company to likely post revenue and earnings marginally above the street expectations, driven by a recovery in its pharmacy management business. With the spread of the delta variant, the company likely saw some uptick in Covid-19 testing demand, as well. However, a slowdown in overall Covid-19 vaccination rate likely resulted in a decline in revenue contribution from Covid-19 vaccine administration. Also, a rebound in total procedure volume will likely result in higher benefit costs, weighing on the overall earnings growth, in our view. For perspective, benefit costs as a percentage of premiums stood at 83.3% in the first half of 2021, compared to 75.6% in the prior year period. Furthermore, our forecast indicates that CVS’ valuation is $96 per share, which is only 6% above the current market price of around $91, implying CVS stock has only a little room for growth. Our interactive dashboard analysis on CVS Health’s Pre-Earnings has additional details.
(1) Revenues expected to be marginally above the consensus estimates
Trefis estimates CVS Health’s Q3 2021 net revenues to be around $70.6 billion, slightly above the $70.5 billion consensus estimate. Revenue growth is expected to be led by the Covid-19 vaccination, which CVS is administering in over 8,000 locations. However, given the rise in overall vaccination rate, the demand for testing has come down. As such, CVS’ revenues from administering the Covid-19 testing is expected to see a sequential decline. On the Aetna side, the company will likely continue to add new Medicaid members. Also, given an increase in hospital visits, the company’s pharmacy business is likely to see steady growth in Q3. Our dashboard on CVS Health’s Revenues offers more details on the company’s segments.
2) EPS also likely to be just above the consensus estimates
CVS Health’s Q3 2021 adjusted earnings per share is expected to be $1.81 per Trefis analysis, compared to the consensus estimate of $1.78. CVS Health’s adjusted net income of $3.2 billion in Q2 2021 reflected a 7.6% drop from its $3.5 billion figure in the prior-year quarter. This can be attributed to contraction of margins, partly due to higher benefit costs. However, for the full-year 2021, we expect the adjusted EPS to be higher at $7.75, compared to $7.50 seen in 2020.
(3) Stock price estimate just above the current market price
Going by our CVS Health’s Valuation with an EPS estimate of $7.75 and a P/E multiple of 12x in 2021, this translates into a price of $96, which is 6% above the current market price of around $91. While the 12x figure compares with levels of 9x – 10x seen over the recent years, we believe the P/E multiple will likely increase with margin expansion and better earnings growth over the coming years, partly driven by an overall rebound in economic growth, as the Covid-19 crisis winds down.
Note: P/E Multiples are based on Share Price at the end of the year and reported (or expected) Adjusted Earnings for the full year.
While CVS stock has a little room for growth, 2020 has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised how counter-intuitive the stock valuation is for Flir Systems vs. CVS Health.
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