Drug store giant CVS Health Corporation (CVS) set its all-time intraday high of $113.65 at the end of July 2015 and has been a laggard since then. The pharmacy stock suffered under pressure from Amazon.com, Inc.'s (AMZN) plan to expand into the healthcare industry. CVS stock traded as low as $60.14 on March 27 as the company countered with its plan to take over health insurer Aetna Inc. (AET). CVS shares closed last week at $64.89, down 10.5% year to date and in bear market territory at 22.6% below the Jan. 29 high of $83.88. The stock is 7.9% above its 2018 low of $60.14 set on March 27.
Analysts expect CVS to post earnings per share between $1.61 and $1.63 when it reports results before the opening bell on Wednesday, Aug. 8. CVS is not just your neighborhood pharmacy – it is also your pharmacy benefits management company. Furthermore, about 10% of locations feature the Minute Clinic, which can be considered a mini-ER.
When the company released first quarter results on May 2, it reported a solid beat. The stock did not rebound immediately but slumped to a secondary low of $60.32 on May 8 before rebounding to its 200-day simple moving average of $71.20 and then fading once again. Reasons for a sluggish stock include slowing revenue growth and the cost of the Aetna acquisition, which is expected to close by year end. Sustained earnings growth caused by tax reform is the wildcard. (See also: CVS Offers Rx Delivery to Stay Ahead of Amazon.)
The daily chart for CVS Health
The daily chart for CVS shows that the stock set its 2018 high as the year began with a price of $83.88 on Jan. 29. The stock declined by a bear market percentage to its 2018 low of $60.14 set on March 27. The stock is below its 50-day and 200-day simple moving averages of $66.82 and $69.27, respectively. This week's value level is the horizontal line on the chart at $62.85.
The weekly chart for CVS Health
The weekly chart for CVS is negative, with the stock below its five-week modified moving average of $66.39. The stock is also below its 200-week simple moving average at $87.08 and has been below this "reversion to the mean" since the week of Nov. 11, 2016, when the average was $83.40. The 12 x 3 x 3 weekly slow stochastic reading ended last week at 48.49, down from 54.18 on July 27.
Given these charts and analysis, investors should buy CVS shares on weakness to my weekly value level of $62.85 and reduce holdings on strength to the 200-day simple moving average of $69.27. (For more, see: 6 Value Stocks for a Pricey Market: Leon Cooperman.)