Option Trade 
CVS Health Corp (NYSE:CVS) Calls
Wednesday, August 02, 2017


** OPTION TRADE: Buy the CVS SEPT 15 2017 80.000 CALL at approximately $1.85. Place a pre-determined sell at $3.70.

Note: No protective stop losses added -- but if you wish to do so make it $0.75.

Also Note: This is a recommendation and individual members can use their own discretion as to when to enter or exit!

You may also wish to read Stock Options Made Easy Trading Philosophy

by Ian Harvey   

CVS Health Corp (NYSE:CVS), formerly CVS Caremark Corporation, is a pharmacy healthcare provider in the United States, is expected to issue its next earnings results before the market opens on Tuesday, August 8th.

Brokerages expect CVS Health Corporation to announce $1.31 earnings per share (EPS) for the current fiscal quarter. Seventeen analysts have provided estimates for CVS Health Corporation’s earnings, with the lowest EPS estimate coming in at $1.29 and the highest estimate coming in at $1.33. CVS Health Corporation reported earnings of $1.32 per share in the same quarter last year, which would indicate a negative year-over-year growth rate of 0.8%.

On average, analysts expect that CVS Health Corporation will report full year earnings of $5.87 per share for the current financial year, with EPS estimates ranging from $5.82 to $5.90. For the next year, analysts anticipate that the firm will post earnings of $6.36 per share, with EPS estimates ranging from $6.25 to $6.50.

CVS Health Corporation, together with its subsidiaries, is an integrated pharmacy healthcare company. The Company provides pharmacy care for the senior community through Omnicare, Inc. (Omnicare) and Omnicare’s long-term care (LTC) operations, which include distribution of pharmaceuticals, related pharmacy consulting and other ancillary services to chronic care facilities and other care settings.

CVS Health Corp. is probably the most successful of the major drug store chains. Its stock sells for 0.5 times revenue, in line with its own past multiples. Yet the company has grown its sales at a 12 percent clip the past decade, and that accelerated to 17 percent last year.

CVS Health Corporation has a 50-day moving average of $78.75 and a 200 day moving average of $79.11. The company has a market capitalization of $81.20 billion, a price-to-earnings ratio of 16.62 and a beta of 0.91. CVS Health Corporation has a 12-month low of $69.30 and a 12-month high of $98.66.

Influencing Factors to Consider

CVS Health operates 9,676 retail pharmacies, making it the largest pharmacy chain in the world. In addition, CVS Health is the second-largest pharmacy-benefits manager (PBM) in the U.S.

The company has a great track record when it comes to paying dividends. That's especially true in recent years, with multiple large dividend hikes. CVS Health's dividend yield now stands at 2.54%. The company also has a low payout ratio of 37%, which should allow it to keep the dividend hikes rolling.

CVS Health appears to be attractively valued. Shares currently trade at 12 times expected earnings.

The company lost a couple of major contracts to rival Walgreens in 2016, which caused its stock to fall. However, CVS Health looks to be set for long-term adjusted earnings-per-share growth of around 10%.

Analysts and Hedge Funds Opinions

CVS Health Corporation‘s stock had its “hold” rating restated by stock analysts at Jefferies Group LLC in a note issued to investors on Friday, July 14th. They currently have a $82.00 price target on the pharmacy operator’s stock. Jefferies Group LLC’s target price would suggest a potential upside of 2.59% from the company’s current price.

Several other analysts have also recently commented on the company…..

  • Leerink Swann set a $90.00 price target on shares of CVS Health Corporation and gave the stock a “buy” rating in a report on Saturday, March 18th.
  • UBS AG reaffirmed a “buy” rating and issued a $88.00 price target (down previously from $89.00) on shares of CVS Health Corporation in a report on Tuesday, April 4th.
  • Cowen and Company reissued an “outperform” rating and set a $86.00 target price on shares of CVS Health Corporation in a report on Tuesday, June 13th.
  • Evercore ISI reaffirmed an “outperform” rating and issued a $88.00 price objective (up previously from $87.00) on shares of CVS Health Corporation in a research report on Wednesday, May 3rd.
  • Vetr raised shares of CVS Health Corporation from a “buy” rating to a “strong-buy” rating and set a $85.96 target price on the stock in a research report on Wednesday, May 17th.
  • Tigress Financial initiated coverage on shares of CVS Health Corporation in a research report on Thursday, April 27th. They set a “buy” rating on the stock.
  • Finally, Guggenheim reissued a “buy” rating on shares of CVS Health Corporation in a research report on Monday, July 3rd.

Nine investment analysts have rated the stock with a hold rating and thirteen have issued a buy rating to the company. The company presently has a consensus rating of “Buy” and a consensus target price of $93.98.

Several institutional investors have recently made changes to their positions in the stock…..

  • Norges Bank bought a new stake in shares of CVS Health Corporation during the fourth quarter valued at about $800,355,000.
  • Vulcan Value Partners LLC bought a new stake in shares of CVS Health Corporation during the fourth quarter valued at about $420,930,000.
  • Franklin Resources Inc. boosted its stake in shares of CVS Health Corporation by 19.9% in the fourth quarter. Franklin Resources Inc. now owns 14,288,826 shares of the pharmacy operator’s stock valued at $1,127,532,000 after buying an additional 2,372,019 shares in the last quarter.
  • Arrowstreet Capital Limited Partnership boosted its stake in shares of CVS Health Corporation by 840.0% in the fourth quarter. Arrowstreet Capital Limited Partnership now owns 2,438,013 shares of the pharmacy operator’s stock valued at $192,384,000 after buying an additional 2,178,649 shares in the last quarter.

Harvey’s Options Volatility Indicator

Conclusion

Analysts estimate that CVS Health Corporation is likely to beat earnings expectations when it reports next Tuesday.

Therefore, based on the facts above, and Harvey’s Options Volatility Indicator, the following option trade is recommended…..

 

** OPTION TRADE: Buy the CVS SEPT 15 2017 80.000 CALL at approximately $1.85. Place a pre-determined sell at $3.70.

Note: No protective stop losses added -- but if you wish to do so make it $0.75.

 

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