What’s next for CVS Health Stock after a solid Q3?


CVS stock (NYSE: CVS) is up 15% in a month, outperforming the broader S&P500 index, up 6%. The rise in CVS stocks can be attributed to the solid Q3 results reported last week. Sales and earnings were well above our estimates, thanks to continued growth in total membership and a favorable medical expense ratio (up 230 bps yoy). The company took a one-time charge of $5 billion to settle all opioid-related lawsuits.

CVS revenue of $81.2 billion reflected a 10% yoy increase. Sales increased approximately 10% each for the Health Care Benefits and Pharmacy Services segments, and the Retail segment increased sales by 7%. Earnings of $2.09 per share on an adjusted basis were up 6% yoy, partly due to a 30 basis point decline in adjusted operating margin. Given the strong momentum, the company raised its full-year earnings forecast to $8.55 to $8.65, compared to its previous guidance of $8.40 to $8.60 per share and adjusted.

CVS stocks suffered a cut last month from the largest health insurance plan for Medicare patients, with 1.9 million members. The downgrade implies that the plan is not eligible for performance-related bonus payments from the government in 2024. Investors worried about its impact on earnings, resulting in a sharp drop in CVS shares. However, a strong third quarter and a recovery in broader markets helped the stock.

we maintain CVS Health’s Rating about $125 a share, which is about 23% above the current market price of $102. This represents a 14x P/E multiple based on the projected EPS of $8.63 in 2022, compared to the 12x figure recently seen in late 2021. We have allocated a slightly higher multiple, and expect robust earnings growth for the coming years, including the benefit of the recently announced acquisition of Signify Health – a home health services company.

But what about the near term?

With CVS stock up 15% in a month, will it continue its upward trajectory or threaten to fall? Judging by historical achievements, there is: a slightly higher chance of an increase in CVS stock the coming month. CVS stocks have risen 38 times over the past decade by 15% or more. 21 of these resulted in CVS stock rising over the next one month (twenty-one trading days) period. This historical pattern reflects 21 out of 38, or a 55% chance of CVS stock rising in the next month. See our analysis on Chance of an increase in CVS Health for more details.

Calculating ‘Event Probability’ and ‘Chance of Rise’ using data from the last ten years

  • After a movement of 7.4% or more for five days, the proportion increased in 43% of cases in the following five days.
  • After moving 10.2% or more over ten days, the proportion increased in 42% of cases over the next ten days
  • After a movement of 15.2% or more over a twenty-one day period, the proportion increased in 55% of cases in the following twenty-one days.

This pattern suggests a higher probability of a rise in CVS stock over the next twenty-one days.

CVS Health Stock Return (Recent) Comparison with Peers and S&P500

  • Five-day return: CVS highest at 7.4%; AMZN lowest at -7.0%
  • Ten-day return: CVS highest at 10.2%; AMZN lowest at -25.4%
  • Twenty-One Days Return: WBA Highest at 20.3%; AMZN lowest at -20.8%

While CVS stocks seem undervalued, it’s helpful to see how: Colleagues of CVS Health rate on metrics that matter. Other valuable comparisons for companies in different sectors can be found at Pear Comparisons.

In addition, the Covid-19 crisis and recent market volatility have led to many price discontinuities that can provide attractive trading opportunities. For example, you will be amazed at how counter-intuitive stock valuation is Target vs Emerging Bio-Solutions.

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