CVS Jumped 11% In A Month. What To Do Now?
CVS Health (CVS) stock is up 10.5% in 21 trading days. Already own the stock? Might want to consider booking some profit as there is risk – specific to profitability, balance sheet and downturn resilience. Consider the following data:
- Size: A $89 Bil company with $379 Bil in revenue currently trading at $70.26.
- Fundamentals: Last 12 month revenue growth of 5.0% and operating margin of 2.9%.
- Liquidity: Has Debt to Equity ratio of 0.9 and Cash to Assets ratio of 0.05
- Valuation: Currently trading at P/E multiple of 16.8 and P/EBIT multiple of 8.7
- Has one instance since 2010 where it dipped >30% in < 30 days and subsequently returned 23.5% within a year. See CVS Dip Buy Analysis.
While we like to ride the momentum if the fundamentals check out – for CVS, see Buy or Sell CVS Stock – we are vary of bull traps. Specifically, it is worth trying to answer if things get really bad, and CVS drops 20-30% to $49.18 levels, will we be able to hold on to the stock? What is the worst case scenario? We call it downturn resilience.
Below is a deep dive into CVS Health (CVS) downturn resilience – specifically, its performance vs the market during past crises? Turns out, the stock has fared worse than the S&P 500 index during various economic downturns. We assess this based on both (a) how much the stock fell and, (b) how quickly it recovered.
Below are the details, but before that, as a quick background: CVS provides health services including pharmacy benefit management, retail prescription drugs, and personal care products through thousands of retail and MinuteClinic locations across the United States.
2022 Inflation Shock
- CVS stock fell 41.2% from a high of $110.83 on 8 February 2022 to $65.17 on 31 August 2023 vs. a peak-to-trough decline of 25.4% for the S&P 500.
- The stock is yet to recover to its pre-Crisis high
- The highest the stock has reached since then is $81.42 on 7 January 2024 , and currently trades at $70.26
| CVS | S&P 500 | |
|---|---|---|
| % Change from Pre-Recession Peak | -41.2% | -25.4% |
| Time to Full Recovery | Not Fully Recovered days | 464 days |
2020 Covid Pandemic
- CVS stock fell 31.2% from a high of $76.05 on 16 January 2020 to $52.30 on 16 March 2020 vs. a peak-to-trough decline of 33.9% for the S&P 500.
- However, the stock fully recovered to its pre-Crisis peak by 11 January 2021
| CVS | S&P 500 | |
|---|---|---|
| % Change from Pre-Recession Peak | -31.2% | -33.9% |
| Time to Full Recovery | 301 days | 148 days |
2018 Correction
- CVS stock fell 37.7% from a high of $83.63 on 29 January 2018 to $52.13 on 2 April 2019 vs. a peak-to-trough decline of 19.8% for the S&P 500.
- However, the stock fully recovered to its pre-Crisis peak by 6 May 2021
| CVS | S&P 500 | |
|---|---|---|
| % Change from Pre-Recession Peak | -37.7% | -19.8% |
| Time to Full Recovery | 765 days | 120 days |
2008 Global Financial Crisis
- CVS stock fell 45.6% from a high of $44.12 on 5 June 2008 to $23.98 on 9 March 2009 vs. a peak-to-trough decline of 56.8% for the S&P 500.
- However, the stock fully recovered to its pre-Crisis peak by 16 February 2012
| CVS | S&P 500 | |
|---|---|---|
| % Change from Pre-Recession Peak | -45.6% | -56.8% |
| Time to Full Recovery | 1074 days | 1480 days |
Worried that CVS could fall much more? You could take a look at the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has a track record of comfortably outperforming its benchmark that includes all 3 – the S&P 500, S&P mid-cap, and Russell 2000 indices. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.