Here’s what to know beyond why CVS Health Corporation (CVS) is a trending stock
SVC Health (CVS) recently made it to Zacks.com’s Most Wanted Stock list. Therefore, you may want to consider some of the key factors that may influence the stock’s performance in the near future.
Over the past month, shares of this pharmacy chain and pharmaceutical benefits manager have returned -4.4%, compared to the +4.6% change in the Zacks S&P 500 composite. During this period, the Zacks Retail – Pharmacies and Drug Stores sector, in which CVS Health is part, lost 1.6%. The key question now is: what could be the future direction of the title?
While press releases or rumors about a substantial change in a company’s trading outlook usually “trend” its stock and cause an immediate price change, there are always fundamental facts that ultimately dominate the take. purchase and retention decision.
Revisions to earnings estimates
At Zacks, we prioritize evaluating change in a company’s future earnings projection over anything else. This is because we believe that the present value of its future income stream is what determines the fair value of its stock.
Our analysis is primarily based on how sell-side analysts covering the stock revise their earnings estimates to reflect the latest trading trends. When a company’s earnings estimates increase, the fair value of its stock also increases. And when the fair value of a stock is higher than its current market price, investors tend to buy the stock, causing its price to rise. For this reason, empirical studies indicate a strong correlation between trends in earnings estimate revisions and short-term movements in stock prices.
For the current quarter, CVS Health is expected to post earnings of $1.99 per share, indicating a +1% change from the prior year quarter. The Zacks consensus estimate has remained unchanged for the past 30 days.
The current year earnings consensus estimate of $8.54 indicates a year-over-year change of +1.7%. This estimate has remained unchanged for the past 30 days.
For the next fiscal year, the consensus earnings estimate of $9.20 indicates a change of +7.7% from what CVS Health is expected to report a year ago. Over the past month, the estimate has changed by -0.1%.
have a strong externally audited balance sheet, our proprietary stock rating tool, Zacks Rank, provides a more conclusive picture of a stock’s price direction in the short term, as it effectively harnesses the power of earnings estimate revisions. Due to the magnitude of the recent consensus estimate change, as well as three other factors related to earnings estimatesCVS Health is ranked Zacks Rank #3 (Hold).
The chart below shows the evolution of the company’s consensus 12-month EPS estimate:
12 month EPS
Revenue Growth Forecasts
While a company’s earnings growth is arguably the best indicator of its financial health, nothing happens if it can’t grow its revenue. It is almost impossible for a company to increase its profits without increasing its revenue for long periods of time. Therefore, knowing the potential revenue growth of a business is crucial.
For CVS Health, the current quarter sales consensus estimate of $76.53 billion indicates a year-over-year change of +3.7%. For the current and future fiscal years, the estimates of $311.69 billion and $328.07 billion indicate variations of +6.7% and +5.3%, respectively.
Latest reported results and history of surprises
CVS Health reported revenue of $80.64 billion in the last reported quarter, representing a year-over-year change of +11%. EPS of $2.40 for the same period versus $2.42 a year ago.
Compared to Zacks’ consensus estimate of $76.57 billion, reported revenue is a surprise +5.31%. Surprise EPS was +11.11%.
The company has exceeded consensus EPS estimates in each of the past four quarters. The company has exceeded consensus earnings estimates every time during this period.
Without considering the valuation of a stock, no investment decision can be effective. Crucial to predicting a stock’s future price performance is whether its current price accurately reflects the intrinsic value of the underlying business and the company’s growth prospects.
While comparing the current values of a company’s valuation multiples, such as the price-to-earnings (P/E) ratio, the price-to-sales (P/S) ratio, and the price-to-cash flow (P/CF) ratio , along with its own historical values help determine whether its stock is fairly valued, overvalued or undervalued, comparing the company against its peers on these metrics gives a good idea of the reasonableness of the stock price .
The Zacks Value Style Score (part of the Zacks Style Scores system), which pays close attention to traditional and unconventional valuation metrics to rank stocks from A to F (an A is better than a B; a B is better than a C; and so on), is quite useful in determining whether a stock is overvalued, correctly priced, or temporarily undervalued.
CVS Health is rated A on this front, indicating that it is trading at a discount to its peers. Click here to see the values of some of the rating metrics that led to this rating.
The facts discussed here and plenty of other information about Zacks.com might help determine whether it’s worth paying attention to the market buzz about CVS Health. However, its No. 3 Zacks ranking suggests it could perform in line with the broader market in the near term.
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