CVS At Support Zone: Bargain or Bear Trap?
CVS Health (CVS) should be on your watchlist. Here is why – it is currently trading in the support zone ($66.75 – $73.77), levels from which it has bounced meaningfully before. In the last 10 years, the stock received buying interest at this level 3 times and subsequently went on to generate 15.7% in average peak returns.
| Peak Return | Days to Peak Return | |
|---|---|---|
| 5/4/2021 | 10.7% | 17 |
| 7/6/2021 | 9.3% | 111 |
| 10/25/2021 | 27.1% | 106 |
But is the price action enough alone? It certainly helps if the fundamentals check out. For CVS Read Buy or Sell CVS Stock to see how convincing this buy opportunity might be.
Here are some quick data points:
- Revenue Growth: 5.0% LTM and 8.1% last 3 year average.
- Cash Generation: Nearly 1.6% free cash flow margin and 2.9% operating margin LTM.
- Recent Revenue Shocks: The minimum annual revenue growth in last 3 years for CVS was 6.4%.
- Valuation: CVS trades at a PE multiple of 17.5
- Opportunity vs S&P: Compared to S&P, you get lower valuation, higher 3 year average revenue growth, and lower margins
CVS Health 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.
| CVS | S&P Median | |
|---|---|---|
| Sector | Health Care | – |
| Industry | Health Care Services | – |
| PE Ratio | 17.5 | 24.1 |
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| LTM* Revenue Growth | 5.0% | 5.1% |
| 3Y Average Annual Revenue Growth | 8.1% | 5.3% |
| Min Annual Revenue Growth Last 3Y | 6.4% | -0.1% |
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| LTM* Operating Margin | 2.9% | 18.7% |
| 3Y Average Operating Margin | 3.8% | 17.9% |
| LTM* Free Cash Flow Margin | 1.6% | 13.4% |
*LTM: Last Twelve Months
That is one way to look at stocks. Trefis High Quality Portfolio evaluates much more, and is designed to reduce stock-specific risk while giving upside exposure
What Is Stock-Specific Risk If The Market Crashes?
That said, CVS isn’t immune to big drops. It plunged over 62% in the Dot-Com Bubble and lost about 45% during the Global Financial Crisis. Even the smaller pullbacks, like the 2018 correction and inflation shock, saw dips close to 35-40%. The Covid selloff wasn’t painless either, with a roughly 30% drop. Solid fundamentals matter, but when volatility hits, CVS can still take serious hits.
But the risk is not limited to major market crashes. Stocks fall even when markets are in good shape – think events like earnings, business updates, outlook changes. Read CVS Dip Buyer Analyses to see how the stock has recovered from sharp dips in the past.
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.