Following The Market To Profits In CVS And Eli Lilly
It’s never a good idea to make an investment decision based on a single analyst’s opinion and that is true for both CVS Health (NYSE: CVS) and Eli Lilly (NYSE: LLY). While we don’t like to follow the leader into stock, when we like a stock and the analyst’s community is getting bullish too the potential for gains is much bigger. After all, the more the merrier as they say, and the more investors that want to get into a stock, especially if it is outperforming and guiding higher, the higher the price action is likely to go.
CVS Health Got The Market’s Attention
CVS Health captured the market’s attention on its first-ever investor day. The company not only raised the dividend for the first time since 2017 but also initiated a share buyback program and issued guidance for the next year. While the dividend increase and buyback program are big news and point to solid improvement in company operations it is the guidance that really counts. The company is expecting FY 2022 revenue of at least $304 billion compared to the consensus of $300.6 billion and the earnings guidance is strong as well. The dividend increase is worth 10% to shareholders at the next payout which is due in February. The buyback plan is worth $10 billion or about 7.5% of the current market cap.
The news accelerated a bullish trend among the analysts and should spur price action even higher. The company picked up 3 new analysts since the 1st of December making 9 new ratings since the spring. The Pricetargets.com consensus rating is a firm Buy with a price target that has been moving steadily higher. The consensus of $111.14 implies about 12$ of upside is still available and is up 6% in the last 30 days and 20% in the last 90. In our view, the stock is well-positioned to move up and retest the $110 region, the question is whether it will move up and set a new all-time high. Decatur Capital Management CEO Degas Wright says the stock is a top pick for its growth as well as its 2.0% dividend yield.
Eli Lilly Guides Higher On Strong Pipeline
Eli Lilly gave the market some equally good news when it updated 2021 guidance and provided its initial outlook for 2022. The company’s CEO says a healthy pipeline of drugs including several to be launched next year will continue to drive the company’s growth even after this year’s strength. The new guidance for this year is calling for earnings above consensus as is the outlook for next year. Next year the company is expecting adjusted EPS in the range of $8.50 to $8.65 versus the analyst’s consensus of $8.21 and the analysts are already responding to the news.
The company has received 8 bullish analyst nods since the guidance update, an update that included a 13% increase to the dividend, and they are pushing the consensus price target higher. The Pricetarget.com consensus of $287 implies about 8% of the upside for the stock and it is up 7.5% in the last 30 days and 15% in the last 90. The analysts at Cantor Fitzgerald set the new high price target of $335 as well, a target that implies about 27% of the upside for the stock.
Price action is currently in retreat but still trading near freshly set all-time highs. We expect to see support-buying kick in around the $260 level and send price action moving sideways if not back up to set another new all-time high very soon.
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