Will CVS Caremark Continue to See Rising Prices?

With shares of CVS Caremark (NYSE:CVS) trading around $57, is CVS an 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 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. 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 witnessed a powerful move over the last several years. The stock is now consolidating near all-time high prices and might get going after it digests recent gains. 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 near its rising key averages which signal neutral to bullish price action in the near-term.

NEW! Discover a new stock idea each week for less than the cost of 1 trade. CLICK HERE for your Weekly Stock Cheat Sheets NOW!

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

23.94%

96%

95%

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

Put IV Skew

Call IV Skew

July Options

Steep

Average

August Options

Steep

Average

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

2.7%

CVS Caremark has seen increasing earnings and revenue figures over the last four quarters. From these figures, the markets have had mixed feelings about CVS Caremark’s recent earnings announcements.

NEW! Discover a new stock idea each week for less than the cost of 1 trade. CLICK HERE for your Weekly Stock Cheat Sheets NOW!

P = Average Relative Performance Versus Peers and Sector

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

CVS Caremark

Rite Aid

Walgreen

Express Scripts

Sector

Year-to-Date Return

18.61%

114%

30.24%

15.98%

16.34%

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

Conclusion

CVS Caremark provides valuable health care and pharmacy products and services to many consumers in the United States. The stock has been on a powerful move higher but is now digesting gains from a recent run. Over the last four quarters, earnings and revenue figures have increased for the company, but investors seem to have had mixed feelings about the reports. Relative to its peers and sector, CVS Caremark has been an average performer year-to-date. Look for CVS Caremark to OUTPERFORM.

Using a solid investing framework such as this can help improve your stock-picking skills. Don’t waste another minute — click here and get our CHEAT SHEET stock picks now.

More Articles About:   , , ,  

More from The Cheat Sheet