Can CVS Continue to Outperform?

With shares of CVS Caremark (NYSE:CVS) trading around $63, 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 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.

CVS Caremark announced operating results for the three months ended September 30, 2013. Net revenues for the three months increased 5.8 percent, or $1.7 billion, to $32.0 billion compared to the three months ended in 2012.

T = Technicals on the Stock Chart Are Strong

CVS Caremark stock has been displaying a strong trend in recent times. The stock is now consolidating at all time high prices where it may need to spend some time before making its next move. 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

21.20%

0%

0%

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

Put IV Skew

Call IV Skew

December Options

Flat

Average

January 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 minimal 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 Q3

2013 Q2

2013 Q1

2012 Q4

Earnings Growth (Y-O-Y)

30.38%

19.75%

30.51%

12.05%

Revenue Growth (Y-O-Y)

5.76%

1.74%

-0.11%

10.87%

Earnings Reaction

2.42%*

-2.80%

-0.92%

0.53%

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

* As of this writing

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

31.17%

62.50%

293.40%

16.57%

37.74%

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

Conclusion

CVS Caremark provides healthcare and general products and services to consumers across the nation. The company recently reported earnings that left investors satisfied. The stock has been rising higher and it is now consolidating at all time high prices. Over the last four quarters, earnings and revenue figures have been increasing leaving investors pleased about CVS Caremark’s earnings announcements. Relative to its peers and sector, CVS Caremark has been an average year-to-date performer. Look for CVS Caremark to OUTPERFORM.

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