CVS Health (NYSE:CVS) delivered beats in earnings and revenue with its earnings report as Covid-19 vaccinations and testing led the way. Short interest is declining, and the company is in 52-week high territory even with a fundamentally changing landscape for drugstores, making it an attractive buy for income investors looking for stability.
A Clean Win in the Earnings Report
Patterns aside, there's no doubt CVS delivered a win in its latest earnings report for the quarter that ended March 31. The company turned in earnings per share of $2.04, handily beating the $1.72 expected from the Refinitiv consensus. Revenue likewise turned in a win, coming in a $69.1 billion against an expected figure of $68.39 billion. That also represented a similar win over last year's revenue figures, which came in at $66.8 billion in the quarter just ahead of the pandemic.
This in turn led CVS to hike its guidance for the full year; 2021 earnings are now expected to range between $7.56 and $7.68 per share after adjustments. Before adjustments, however, the range will come in between $6.24 and $6.36 per share, reports note.
CVS did note some drawbacks along with its earnings report. Most notably, the company noted that March 2020 featured some vastly increased demand for its products, as the lockdown cycles began and customers were stocking up ahead of what they thought might be a complete elimination of shopping trips. A weak season for colds, coughs and flu—likely brought about by people staying home in vastly larger numbers, some by government mandate—also dragged a bit on CVS' overall earnings and front store sales. Front store sales were down 11.4%, and same-store sales with pharmacy included were up just 0.9%. CVS made up a substantial portion of the difference on Covid-19 testing and Covid-19 vaccinations.
What are Financial Analysts Saying About CVS?
Financial analysts, by and large, are still considering CVS a buy, and in large numbers. The numbers aren't quite so large as they once were, but overall sentiment is still strongly weighted toward “buy”.
A year ago, the company had two “strong buy” ratings, 15 “buy” ratings, and two “hold” ratings to its credit. Today, the “strong buy” ratings are out altogether, leaving us with just 10 “buy” ratings and four “hold” ratings. That's less bullish than we once saw, but still represents a clear “buy” suggestion.
The price target, meanwhile, exists in a fairly broad range. The current average of $83.50 per share reflects a high of $101 and a low of $66, but the average has been trending upward since last October. There hasn't been much movement, either, but the movement seen has been positive. Back in April, both Morgan Stanley and Truist Securities boosted their price targets; Morgan Stanley went to $92 from $86 and Truist went from $80 to $88.
Are CVS' Recent Gains Sustainable?
We have several factors we can consider to determine if CVS stock gains are sustainable, and we can start with the decline in investors looking to short CVS. Short interest is down 3.31% against last month.
Given the response of the analyst pool, that's not surprising. CVS is still heavily weighted toward “buy”, if not as heavily as it once was. That brings up the next point: the overall environment. CVS is likely to lose a little ground going forward. With lockdowns largely wearing off, and gone altogether in some states, the pandemic panic buying we saw back in March 2020 and beyond is likely out of the picture. That's going to hurt the bottom line somewhat, but only somewhat; the conditions that prompted it are gone. Vaccination and testing will help cover some of that slippage in the meantime, but eventually, everyone who wants a Covid-19 vaccination will have one, and we're already starting to see that trend emerge.
One more point emerges in favor of CVS: its dividend history. The company has paid a quarterly dividend regularly for the last eight years, and it's increased five times in that same period. That, coupled with the nature of the company, should make it an attractive stock for income investors looking for a stable dividend producer. CVS never experienced much explosive growth in 2020, which means it shouldn't expect any major losses as a result of the overall condition shifts in 2021. CVS stock price predictions are likely to remain stable, as the company spent one of the most economically unsettled years around fairly stable.
CVS still has a weight of analyst sentiment on its side, clear value for income investors, and a product line that will never go out of style as long as people get sick. Looking to CVS for growth won't be a good plan, but looking for stability should prove much better.
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