Shares of CVS Health CVS surged over 4% through mid-afternoon trading Wednesday on the back of a bullish call from Bernstein analysts. The drugstore chain is also coming off a stronger-than-expected fourth quarter. So, is now the time to buy CVS stock?
Bernstein analyst Lance Wilkes initiated coverage of CVS with an “outperform” rating and a $76 a share price target. This represents 41% upside to CVS’ closing price on Tuesday of $54.65 a share. The analyst thinks that the CVS-Aetna partnership is likely to be a long-term winner in healthcare.
Bernstein was also positive based on the company’s current valuation and its earnings growth prospects, among other reasons. “We believe the current price doesn't reflect Aetna's solid MCO business and the LT value of a care delivery strategy at retail,” Wilkes wrote in a note to clients.
“We think the current valuation already reflects potential shock to PBM margins and future deterioration in the retail business..."
CVS completed its nearly $70 billion acquisition of Aetna in November 2018. The new firm could end up becoming a larger player in a healthcare environment that seems likely to feature more virtual medical checkups and hyper-localized care. CVS’ purchase also helps expand its reach as Amazon AMZN and others venture deeper into the pharmaceutical business.
The company also saw its fourth-quarter fiscal 2018 revenue surge 12.5% to $54.4 billion, which topped our $53.71 billion Zacks Consensus Estimate. Meanwhile, at the bottom end of the income statement, CVS’ adjusted quarterly earnings came in at $2.14 a share to beat our estimate that called for $2.07 per share.
However, we can see that shares of CVS have not performed well over the last few years. In fact, CVS stock is down 22% over the last five years and 44% in the past three. Still, the company has outperformed its peer group, which includes Walgreens Boots Alliance WBA and Rite Aid RAD.
Outlook & Earnings Trends
Looking ahead, our Zacks Consensus Estimate calls for CVS’ first quarter fiscal 2019 revenue to surge roughly 32% to hit $60.31 billion. And the company’s full-year 2019 revenue is expected to jump over 29% to reach $250.63 billion.
Clearly, the firm’s top-line is set to be positively impacted by its Aetna acquisition. With that said, peeking ahead to harder-to-compare fiscal 2020, CVS’ full-year revenue is projected to climb just 3.81% higher than our 2019 projection to reach $260.17 billion.
Moving on, the company’s adjusted Q1 earnings estimate is projected to jump 3.38% to $1.53 per share, with CVS’ full-year earnings estimate expected to sink by roughly 3%. Looking further down the road, the company’s adjusted fiscal 2020 earnings are projected to surge 8.5% above our current-year estimate.
Still, investors should also note that the company’s earnings estimate revision trends have moved almost completely in the wrong direction recently. The charts below detail just how quickly CVS’ bottom-line estimates have deteriorated in the past 30 days.
CVS is a Zacks Rank #5 (Strong Sell) at the moment, based in large part on its earnings estimate revision activity. Therefore, despite Bernstein’s positivity, it seems like CVS might simply be a stock to keep an eye on for now.
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