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Key Takeaways from CVS Health’s 3Q17 Earnings

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Part 5
Key Takeaways from CVS Health’s 3Q17 Earnings PART 5 OF 5

Strong 3Q17 Results Fail to Boost CVS Health’s Stock Price

CVS Health in the stock market

CVS Health’s (CVS) better-than-expected 3Q17 results failed to please investors. The company hit a three-and-a-half-year low as the stock price fell 3.5% to close at $66.80 on November 6. However, the next trading day brought some relief, and the stock price rose 3.2%.

Year-to-date (YTD), CVS has fallen 12.6%. Competitor Walgreens Boots Alliance (WBA) is down 18% to date while smaller rival Rite Aid (RAD) has fallen 81% YTD (year-to-date).

Strong 3Q17 Results Fail to Boost CVS Health’s Stock Price

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The drugstore chains mentioned above have underperformed the S&P 500 Food and Staples Retail Index (+0.3% YoY) and S&P 500 Index (SPX)(+15.7% YoY). CVS and WBA are components of the S&P 500 Food and Staples Retail Index.

The underperformance of pharma retail stocks this year is a result of ongoing pessimism surrounding the drugstore industry due to concerns about Amazon entering the prescription drug space.

Jefferies recommends staying away from CVS until further clarity

Jefferies analyst Brian Tanquilut, in a client note, recently suggested investors avoid buying CVS Health on concerns over Amazon’s competitive threat and the company’s speculated bid for Aetna.

Tanquilut commented, “Based on recent trading patterns (including yday’s reaction to CVS’s introduction of same-day/next-day Rx delivery that some viewed as a defensive move against a supposed Amazon’s entry into Rx), it is evident that overhangs related to speculation of an Aetna purchase and Amazon’s supposed pharmacy plans are the more relevant drivers of [near term] stock performance.”

He added, “Since it is difficult to refute either overhang, we believe investors will continue to put a discount on CVS shares until some clarity emerges on these issues.”

The Wall Street Journal reported last month that CVS Health was in talks to buy Aetna (AET) for ~$66 billion.

Investors looking for exposure to CVS can consider the First Trust Consumer Staples AlphaDEX Fund (FXG), which invests 4.8% of its portfolio in the company.

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