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Strong Q2 2018 Results Cushion CVS Health’s Falling Share Price

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CVS Health in the stock market

CVS Health’s (CVS) better-than-expected second-quarter results managed to please investors. The company’s share price soared 6% during the day on August 8 before finally settling at $68.17, 4.2% higher than the previous day’s close.

The share price boost reduced CVS Health’s YTD (year-to-date) losses to 6%. In comparison, Walgreens Boots Alliance (WBA) and Rite Aid (RAD) have fallen 8.4% and 11.7%, respectively, YTD as of August 8.

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All the above-mentioned drugstore chains have underperformed the broader S&P 500 Index (SPY) with its rise of 6.9% YoY. The underperformances of these stocks are mostly the result of ongoing pessimism surrounding the industry on concerns of Amazon’s (AMZN) entering the prescription drug space and the uncertainty arising from the Trump administration’s recent recommendations. Amazon’s recent acquisition of online pharmacy company PillPack has hit pharmacy stocks hard.

Analysts’ actions since CVS’s second-quarter results

While CVS Health’s second-quarter results didn’t result in any rating changes, a few analysts, including those from Leerink Partners and Oppenheimer, reduced their price targets on the stock. Leerink cut its price target from $85 to $80, and Oppenheimer lowered its price target from $86 to $85.

CVS now has an average price target of $85.70, indicating a potential upside of 26% for its stock. In comparison, Walgreens has a potential upside of ~7%.

A look at Wall Street’s recommendations

CVS is covered by 23 Wall Street analysts, who have rated the company a 1.9 on a scale of 1 (“strong buy”) to 5 (“sell”). A total of 74% of analysts—including Needham & Company, Morgan Stanley, and Raymond James—have recommended “buys” on the stock, while 26%—including Loop Capital—have suggested “holds.” There are no “sell” ratings on the stock.

Investors looking for exposure to CVS Health can consider investing in the First Trust Consumer Staples AlphaDEX ETF (FXG), which invests ~4% of its portfolio in the company.

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