CVS Health (NYSE:CVS) will report its third-quarter results on Nov. 6 after the markets close. CVS stock has made great strides the past three months.
Will the good times continue for CVS Health stock? Here’s a look at both sides of the argument.
CVS Stock Price Will Keep Climbing
When the company reported its Q2 results in August, it provided 2019 earnings per share guidance, excluding some items, of between $6.89 and $7.00. Previously, the bottom end of the guidance range was just $6.75, although the top end of the range had been higher, at $7.
But when CVS first provided 2019 EPS guidance, the top end of its EPS guidance range was $6.88, so the company’s EPS trend is clearly improving.
Moreover, most analysts appear to believe that CVS will meet its 2019 EPS guidance. Their average 2019 EPS estimate is $6.98, well above the midpoint of the guidance range. Moreover, their average top-line sales projection is $252.5 billion, well above the company’s 2018 top line of $194.5 billion.
And in Q2, CVS’ EPS came in at $1.89, 19 cents above analysts’ average estimate. Further, that was the fourth consecutive quarter that the company’s EPS has come in above the average estimate.
Currently,there are 19 analysts with “buy” ratings or the equivalent on CVS stock and nine with “hold” ratings on the shares. Their average price target on CVS stock is $71.52, versus the current CVS stock price of $67.80.
CNBC Mad Money host Jim Cramer recently stated on the Lightning Round segment of his show that he sees the CVS stock price rising to $80 by the end of 2019.
If that was to happen, CVS stock would reach its highest levels since last November.
It’s Time to Take Profits
InvestorPlace contributor Nicholas Chahine specializes in options trading and technical analysis. Recently, he took a look at three stocks that have lagged the markets in 2019,including CVS.
Interestingly, while Chahine considers CVS to be a possible breakout stock that could continue to climb, he finishes his short take on the stock by stating, “The company reports earnings next week, and that will bring about a guessing game. It would be best to lock in profits ahead of earnings, or else this trade could turn into an investment.”
Of course, Chahine was talking about what short-term traders who bought CVS stock when it was trading at $52 in May should do. Investors who did that hold an unrealized paper profit of 27%.
For those traders, Chahine’s call makes sense.
Sure, CVS has surpassed analysts’ average estimates in each of the last four quarters, but, during that time, its EPS beat by an average of just 6.4%. Should the traders who bought CVS stock in May put their impressive gains at risk?
The Bottom Line on CVS Health Stock
In June, I suggested that CVS was one of seven value plays to buy for the second half of 2019. It hasn’t disappointed me. Of course, I did raise some red flags a month later, the biggest one of which was its significant debt load.
In the end, I believe CVS Health is headed in the right direction, both in terms of its share price and its growth strategy.
So, if you haven’t already bought CVS stock, I’d recommend buying some shares before it reports its earnings. But I’d leave a little cash in reserve so you can buy more CVS stock in case the shares retreat in the wake of the results
At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
