Option Trade
CVS Health Corp (NYSE:CVS) Calls 
Monday, November 07, 2016

** OPTION TRADE: Buy the CVS JAN 20 2017 85.000 call at approximately $2.50. Place a pre-determined sell at $5.00.

Note: No protective stop losses added -- but if you wish to do so make it $1.00.        

by Ian Harvey

Monday, November 07, 2016

CVS Health Corp (NYSE:CVS), formerly CVS Caremark Corporation, is a pharmacy healthcare provider in the United States, will post third-quarter numbers November 8. CVS will report its earnings before the market open, with the consensus calling for earnings of $1.57 per share, up from $1.29 during the same period last year.

During the same period in 2015, Woonsocket, RI-based CVS posted adjusted earnings of $1.28 per share on revenue of $38.6 billion.

Additionally, CVS announced recently that it's planning to cut 600 corporate jobs in Rhode Island, Illinois and Arizona over the next two months, according to the Wall Street Journal.

CVS shares have been under pressure since the beginning of the summer, and the stock recently took another hit on news that Express Scripts (ESRX) was removing the company from its Tricare veteran benefits program. The stock is currently trading near its 52-week low, but given the stock’s valuation; there should not be a lot of additional downside risk barring a huge earnings miss.

 CVS has a trailing P/E of 18.9, and a forward P/E of just 12.6. The low valuation, in conjunction with earnings forecast to rise by 13.4% this year and 11.6% next year makes the stock attractive at this point. The consensus calls for $1.57, but the street has a slightly higher whisper number of $1.59, signaling that Wall Street expects to see a solid report coming in above the consensus. The company has done a good job growing earnings, but the Express Scripts decision, as well as political pressure on drug costs continues to curb optimism on the stock. However, with so much negativity already priced into the stock, a good quarterly report should finally bring enthusiasm back into the stock and help shares erase some of the recent losses.

It is also to be noted that CVS Health Corporation has posted impressive quarter over quarter sales growth of 17.60%.  Quarter over quarter EPS stands at -23.50%.

The stock is down 15.7% on the year.

CVS Health Corporation has a 50 day moving average price of $87.47 and a 200 day moving average price of $94.74. The firm has a market cap of $87.76 billion, a price-to-earnings ratio of 18.93 and a beta of 0.88. CVS Health Corporation has a one year low of $81.25 and a one year high of $106.67.

Analyst Input

CVS has been the subject of several analyst reports.

  • Vetr upgraded CVS Health Corporation from a “buy” rating to a “strong-buy” rating and set a $98.36 target price for the company in a research report on Monday, October 24th.
  • Deutsche Bank AG restated a “hold” rating and set a $99.00 target price (down previously from $108.00) on shares of CVS Health Corporation in a research report on Tuesday, October 18th.
  • Credit Suisse Group AG restated an “outperform” rating and set a $110.00 target price (down previously from $115.00) on shares of CVS Health Corporation in a research report on Tuesday, October 4th.
  • Robert W. Baird cut their target price on CVS Health Corporation from $114.00 to $104.00 and set an “outperform” rating for the company in a research report on Monday, October 3rd.
  • Finally, Leerink Swann restated an “outperform” rating and set a $105.00 target price (down previously from $110.00) on shares of CVS Health Corporation in a research report on Sunday, October 2nd.

Five analysts have rated the stock with a hold rating, thirteen have assigned a buy rating and one has assigned a strong buy rating to the company’s stock. The stock has a consensus rating of “Buy” and an average target price of $111.24.

Harvey’s Options Volatility Indicator

Conclusion

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

** OPTION TRADE: Buy the CVS JAN 20 2017 85.000 call at approximately $2.50. Place a pre-determined sell at $5.00.

Note: No protective stop losses added -- but if you wish to do so make it $1.00.

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