Can CVS Caremark Continue To Explode?

With shares of CVS Caremark (NYSE:CVS) trading around $60, is CVS can OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

CVS Caremark is a pharmacy and healthcare provider in the United States. The company operates in three business segments: Pharmacy Services, Retail Pharmacy, and Corporate. The products and services offered at CVS Caremark stores may be deemed as essential by many consumers in the United States. As CVS Caremark provides an efficient and affordable healthcare and pharmacy experience, look for it to see rising profits.

Summer enthusiasts love to flock to CVS Caremark for much of their summer gear. Many consumers count on companies like CVS Caremark to meet their summer needs. The healthcare sector is seeing a massive change that may benefit companies like this one for many years.

T = Technicals on the Stock Chart are Strong

CVS Caremark stock has seen a solid uptrend extending back to its breakout in 2011. The stock is now trading near all-time high prices and does not yet show significant signs of slowing. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, CVS Caremark is trading above its rising key averages which signal neutral to bullish price action in the near-term.

CVS

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of CVS Caremark options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

CVS Caremark Options

24.07%

56%

52%

What does this mean? This means that investors or traders are buying a significant amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

August Options

Flat

Average

September Options

Flat

Average

As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a significant amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Increasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on CVS Caremark’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for CVS Caremark look like and more importantly, how did the markets like these numbers?

2013 Q1

2012 Q4

2012 Q3

2012 Q2

Earnings Growth (Y-O-Y)

30.51%

12.05%

21.54%

25.00%

Revenue Growth (Y-O-Y)

-0.11%

10.87%

13.32%

16.28%

Earnings Reaction

-0.92%

0.53%

-1.73%

2.70%

CVS Caremark has seen increasing earnings and revenue figures over the last four quarters. From these numbers, the markets have generally been happy with CVS Caremark’s recent earnings announcements.

P = Average Relative Performance Versus Peers and Sector

How has CVS Caremark stock done relative to its peers, Walgreen (NYSE:WAG), Rite Aid (NYSE:RAD), Express Scripts (NASDAQ:ESRX), and sector?

CVS Caremark

Walgreen

Rite Aid

Express Scripts

Sector

Year-to-Date Return

25.58%

33.61%

104.41%

19.94%

20.67%

CVS Caremark has been an average year-to-date performer.

Conclusion

CVS Caremark is the second largest pharmacy in the nation that stands ready to provide consumers with hottest summer products. The stock has been trending higher in recent years and is now trading at all-time high prices where it may spend some time. Over the last four quarters, earnings and revenue figures have been increasing which has generally led to happy investors. Relative to its strong peers and sector, CVS Caremark has been an average year-to-date performer. Look for CVS Caremark to OUTPERFORM.

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