CVS Health Corporation (CVS) shares fell more than 1.2% on Thursday, breaking down from key channel support levels. Since the health services company reported fourth quarter financial results on Feb. 19, the stock has plunged nearly 24% to fresh 52-week lows. Investors remain concerned about the stability of the company's existing businesses, as well as the integration of Aetna following the acquisition.
Earlier this week, Citi analysts lowered their price target on CVS shares from $94.00 to $68.00, but they maintained a Buy rating. The analyst says that retail headwinds are significant, but he's most surprised by the significant drop in the health care benefits segment. He admits that it's difficult to gain visibility into 2020 but sees a "reasonable path" to $7.20 in earnings per share next year, justifying his current rating. These sentiments mirrored those of other analysts that weighed in earlier.
While analysts have downgraded CVS stock due to the uncertainty, management remains confident that the headwinds are temporary. CEO Larry Merlo called 2019 a "year of transition" as the company integrates Aetna and focuses on its growth strategy over the long term, but he remains confident in the company's longer-term success.
From a technical standpoint, CVS stock experienced a double top at the end of last year and a death cross in late January. These bearish trends accelerated following the company's fourth quarter financial results. On Thursday, the stock broke down from trendline support at the bottom of its price channel. The relative strength index (RSI) moved deeper into oversold territory at 20.08, but the moving average convergence divergence (MACD) remains very bearish.
Traders should watch for some consolidation around trendline and S1 support near $53.50. If the stock breaks down from these levels, traders could see a move lower toward S2 support at $49.14. If the stock rebounds from these levels, traders could see a move higher to retest the pivot point at $61.90 over time. The current bearish sentiment in the market suggests that the bull case may still be a ways off.
The author holds no position in the stock(s) mentioned except through passively managed index funds.