CVS Health stock (NYSE: CVS) reported its Q2 results last week, with revenue and earnings comfortably above ours and the street estimates. CVS stock has rallied around 2% in a week, while it’s up 10% in a month. Despite the recent rise, we believe CVS stock has more room for growth and may continue to see higher levels, as discussed below.
CVS Health’s revenue (Q2) of $80.6 billion was up 11% (y-o-y), and EPS of $2.40 was down 1% (y-o-y), compared to our estimates of $76.7 billion and $2.19, respectively. The revenue growth was seen across segments, and its total medical membership stood at 24.4 million, up 1% from the prior-year period. The operating margins contracted 76 bps to a little under 6% due to a high single-digit decline in the Retail segment. This can be attributed to the lower contribution of the Covid-19 vaccine volume.
Based on solid results, the company raised its full-year earnings outlook. It now expects its adjusted EPS to be between $8.40 and $8.60, up from its previous guidance of the $8.20 and $8.40 range. Given the recently announced results and outlook, we have updated our model and revised our estimates. We expect full-year 2022 revenue to be $312 billion and earnings to be $8.40 on a per share and adjusted basis. We have revised CVS Health’s Valuation to be around $125 per share (vs. $116 earlier), which is 20% above the current market price of $104, implying that CVS stock has some more room for growth. This represents a P/E multiple of under 15x based on our EPS forecast of $8.40 in 2022. At its current levels, CVS stock is trading at 12x its expected forward earnings, aligning with the figure seen in late 2021. We have assigned a slightly higher multiple, expecting robust earnings growth over the coming years.
But what about the near term?
Now that CVS stock has seen a rise of 10% in a month, will it continue its upward trajectory, or is a fall imminent? Going by historical performance, there is a higher chance of a rise for CVS stock over the next month. A move of 10% in a month for CVS has occurred 152 times in the past ten years. Of those, 85 instances resulted in CVS stock rising over the subsequent one-month period (twenty-one trading days). This historical pattern reflects 85 out of 152, or about a 56% chance of a rise in CVS stock over the next month. See our analysis of CVS Health Stock Chance of Rise for more details.
Calculation of ‘Event Probability‘ and ‘Chance of Rise‘ using the last ten years’ data
- After moving 3% or more over five days, the stock rose on 49% of the occasions in the next five days.
- After moving 9% or more over ten days, the stock rose on 41% of the occasions in the next ten days.
- After moving 10% or more over a twenty-one-day period, the stock rose on 56% of the occasions in the next twenty-one days.
This pattern suggests a higher chance of a fall in UNH stock over the next five and ten days but a higher chance of a rise over the next twenty-one days.
CVS Health (CVS) Return (Recent) Comparison With Peers
- Five-Day Return: CVS highest at 3%; WMT lowest at -1%
- Ten-Day Return: AMZN highest at 18%; WBA lowest at 2%
- Twenty-One Day Return: AMZN highest at 31%; KR lowest at -2%
While CVS stock looks like it has more room for growth, it is helpful to see how CVS Health’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.
Furthermore, the Covid-19 crisis 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 Target vs. Emergent Biosolutions.
|S&P 500 Return||2%||-12%||88%|
|Trefis Multi-Strategy Portfolio||5%||-9%||260%|
 Month-to-date and year-to-date as of 8/11/2022
 Cumulative total returns since the end of 2016