What’s Next For CVS Health Stock After A 16% Rise This Month?

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[Updated: 5/19/2021] CVS Update

The stock price of CVS Health (NYSE:CVS) has seen a large 16% move so far this month. Earlier in the month, the stock appreciated after the company reported a solid Q1 beat and more recently, CVS stock rallied after the company announced the appointment of Shawn Guertin as Executive Vice President (EVP) and Chief Financial Officer (CFO) of the company. Shawn was the EVP and CFO of Aetna before CVS acquired it in 2018, and he played an important role in Aetna’s growth as well as its merger with CVS.

CVS has more positives to look forward to. The vaccination drives at CVS stores will continue to be a near-term growth driver. Also, now that 47% of the U.S. population have received at least one dose of the Covid-19 vaccine, the retail sales at CVS stores is likely to increase. As people get more confident on getting out of their homes after being fully vaccinated, there will likely be an increase in footfall at CVS stores, which is better for CVS compared to home delivery of medicines, which has lower margins, due to added shipping costs. Overall, CVS’ business is all set for a strong rebound, and it is reflected in the stock price as well, given a large 27% rally year-to-date, outperforming the broader indices, with the S&P up just 12% over the same period.

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Given the recent rise, CVS stock now has only a little room left for growth in our view. We maintain our CVS Health’s Valuation of $92 per share, based on adjusted EPS estimate of $7.65 and a P/E multiple of 12x in 2021. This implies less than 5% premium to the current market price of around $89. The average price estimate of CVS stock is also around $93, implying only a little room left for growth, and it may be prudent to wait to buy into any dips in CVS stock for better returns.

[Updated: 5/5/2021] CVS Stock Rise

The stock price of CVS Health (NYSE:CVS) has seen a 6.5% rise over the last five trading days, after the company announced better than expected Q1 results. CVS’ Q1 revenue of $69.1 billion was ahead of the $68.1 billion revenue forecast per Trefis estimates and $68.4 billion consensus estimates. Similarly, the company’s adjusted EPS of $2.04 per share was much higher than our forecast of $1.65, and the $1.71 consensus estimate. This robust performance can be attributed to strong demand for Covid-19 vaccinations and tests at CVS stores. The company also revised its full-year 2021 EPS guidance upward to $7.56 to $7.68 from $7.39 to $7.55 earlier.

The investors were more than happy with CVS’ Q1 performance as well as revised guidance, and the stock rose 4%, post the earnings announcement. Now that over 44% of the U.S. population has received at least one dose of vaccine, the company’s retail sales are expected to rise, boding well for CVS stock over the coming quarters. The company had a tough comparison in retail sales, as last year people rushed to fill prescriptions and stock up essentials in anticipation of lockdowns. This clubbed with a weak flu season this year impacted the company’s retail sales growth, which rose 2% y-o-y to $23.3 billion in Q1 2021. CVS’ other business segments also saw steady revenue growth during the quarter.

Now that the stock has risen by 6.5% in five trading days, can it continue its upward trajectory, or is a decline in CVS stock imminent? Going by historical performance, there is only a 54% chance of a rise in CVS stock over the next month. Out of 81 instances in the last ten years that CVS stock saw a five-day rise of 6.5% or more, 44 of them resulted in CVS stock rising over the subsequent one month period (twenty-one trading days). This historical pattern reflects 44 out of 81, or about a 54% chance of gain in CVS stock over the coming month. However, given the momentum in CVS stock, led by a strong earnings beat in Q1, and going by our recently updated CVS Health’s Valuation of $92, based on a revised EPS estimate of $7.65 and a P/E multiple of 12x in 2021, we believe the stock is likely to see higher levels in the near term.

[Updated: 5/3/2021] CVS Q1 Earnings Preview

CVS Health (NYSE: CVS) is scheduled to report its Q1 2021 results on Tuesday, May 4. We expect CVS Health to likely post revenue and earnings below the street expectations, as a rebound in total procedure volume may result in higher benefit costs, while pricing pressure in the pharmacy management business is likely to impact the overall growth. That said, continued growth in prescription volume and increased Covid-19 testing as well as vaccination is expected to more than offset any decline owing to the factors mentioned above.

Despite our forecast indicating revenues and earnings below the street estimates, we believe that CVS Health’s valuation is about $88 per share, which is roughly 16% above the current market price of $76. See our interactive dashboard analysis on CVS Health’s Pre-Earnings has additional details.

(1) Revenues expected to be slightly below the consensus estimates

Trefis estimates CVS Health’s Q1 2021 net revenues to be around $68.1 billion, slightly below the $68.4 billion consensus estimate. A deferment in elective surgeries amid the spread of Covid-19 impacted the overall prescription volume growth in the first half of 2020, but that trend has reversed over the recent quarters, and prescription volume is expected to trend higher going forward.

Now that over 40% of the U.S. population have received at least one dose of the Covid-19 vaccine, the overall economic activities are likely to move a step closer to normalcy, boding well for CVS Health’s business. The company’s Health Care Benefits segment, which provides health insurance, has been expanding its reach to 23.4 million people as of 2020, compared to 22.1 million in 2018. An overall increase in Medicaid enrollments, especially during the Covid-19 crisis, has helped the company expand its membership base, and this trend is expected to continue in the near term. CVS Health’s Q4 2020 sales were up 4% to $69.6 billion, as a 2% decline in the Pharmacy Services segment was more than offset by gains in both Retail as well as Health Care Benefits segments. Our dashboard on CVS Health’s Revenues offers more details on the company’s segments.

2) EPS also likely to be below the consensus estimates

CVS Health’s Q1 2021 adjusted earnings per share (EPS) is expected to be $1.65 per Trefis analysis, compared to consensus estimate of $1.71. CVS Health’s adjusted net income of $1.7 billion in Q4 2020 reflected a 25% drop from its $2.3 billion figure in the prior-year quarter. This can be attributed to increased operating costs during the pandemic. For the full-year 2021, we expect the adjusted EPS to be $7.50, reflecting no change from the 2020 figure.

(3) Stock price estimate 16% higher than the current market price

CVS stock has underperformed the broader markets over the last one year, with the company’s share price rising just 27%, compared to a 47% rise for S&P500. This can largely be attributed to investor concerns over Amazon’s entry into online pharmacy, which is likely to eat market share from CVS. The investors concerns are largely reflected in low P/E multiple the stock currently trades at, compared to some of the other names in the healthcare sector. Going by our CVS Health’s Valuation, with an EPS estimate of around $7.49 and a P/E multiple of around 12x in 2021, this translates into a price of $88, which is 16% above the current market price of $76.

Note: P/E Multiples are based on Share Price at the end of the year and reported (or expected) Earnings for the full year

While CVS stock looks undervalued, it is helpful to see how its peers stack up. Check out UNH stock comparison with its peers to see how UnitedHealth compares against peers on metrics that matter. You can find more such useful comparisons on Peer Comparisons.

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