Is CVS Health Corporation a buy or a sell?

CVS Health Corporation (CVS) is a drugstore company established in the United States providing other services across the healthcare system. Investors should be positive on the company because of its strong fundamentals, which might help it thrive in a risk-averse climate.

CVS’ financial performance in Q4 2021 was strong, but its stock has remained sluggish since the reports were released, owing to disappointing 2022 management outlook. It’s simple to understand CVS’s desirability as an investment opportunity if one ignores the company’s mediocre 2022 projection and concentrates on the company’s strong medium-term bottom line growth objective. This is particularly relevant when considering CVS Health’s comparatively low-teens projected P/E multiples.

CVS Health Corporation-Technical view

First, let’s look at the technical aspect of the stock.

CVS big black bar 

On April 29, the Shareandstocks candlestick scanner detected a bearish signal on this stock – CVS Health Corporation. On that day, a “big black bar” was formed (point 1). This is one of the most bearish signs in the candlestick study. It is a sign that the price opened high and closed low that day. It shows that the selling forces outweighed the buying forces at the end of the trading day.

In addition, 2 bearish Harami candlestick signs have formed in the last 2 weeks. These were points 1 and 2. These usually appear at the end of an uptrend. It is a sign that the uptrend is coming to an end. At point 2, the Harami candlestick pattern was also an “Island reversal pattern”. Again, an “Island reversal pattern” is another very bearish candlestick sign.

The 3 bearish candlestick patterns signal that the chart of CVS Health Corporation stock has triggered a downtrend. 

CVS supertrend

On April 29, the price had also broken through the “super trend” indicator. The dead cross is another sign that the share is turning into the downtrend.

On the daily chart, the price has broken below the “Supertrend” indicator. This is a bearish sign.

Similarly, the price has also fallen below the Supertrend indicator on the weekly chart. This shows that the long-term trend of the chart is also bearish.

cvs bearish

The chart of CVS Health Corporation has also broken a critical support level at $98.45.  

cvs double top

This is an important support level as this level represents the neckline of a Double Top pattern. The Double Top chart pattern is a clear bearish sign in technical analysis. It shows that the price was not able to overcome its last high, and instead falls below the previous low.

CVS important support

From a long-term perspective, the chart of CVS Health Corporation also shows a head-and-shoulders pattern. This is a stronger bearish pattern as it takes longer to form. Point 2 was the “head” of the pattern and point 1 and point 3 were the left and right shoulders of the pattern, respectively. The pattern shows that price finally broke below its support after failing to break above its resistance in at least 3 attempts.

CVS support

Next, we try to find the potential support level to buy back the stock in case a trader decides to short the stock now. Based on the head and shoulders chart pattern, we can make a downward projection as shown in the chart above. According to the chart pattern theory, the distance between the high of the chart and the neckline is the same as the distance between the neckline and the downside target level. In the case of CVS Health Corporation’s chart, the distance between the high and the neckline of the chart is about $12. This means that the potential downside target from the neckline is also $12.

Another way to determine the downside price target of the stock is to use a Fibonacci retracement measurement of the chart based on the immediate high and low of the trend. Such a measurement showed that the 38.20% retracement of the uptrend is at about $90 and the 50% retracement of the trend is at about $83.40. According to Fibonacci theory, the 38.2% and 50% retracement levels usually allow the price to find good support before resuming its uptrend. So these are the 2 important support levels to watch out for. 

Now let us look at the different support levels that result from the 2 different projection methods. The Fibonacci projection method shows that the 61.8% projection is at $90.71, which is very close to the 38.2% retracement level of $90.06. In turn, the 100% Fibonacci projection method shows that the 100% projection is at $85.09, which is close to the 50% retracement level of $83.45. Thus, the 2 good support levels for this stock are around $90.2, followed by $84.

cvs volume profile

The volume profile indicator also provides clues to possible support levels for the stock. The “Max” values, which represent the highest volume traded during the uptrend, are between $83 and $86. This means that the area between $83 and $86 represents a strong consolidation phase for this chart and is likely to be a support level if the price falls back into this area.

CVS Health Corporation- Fundamental view point

On the other hand, here is the Fundamental perspective of CVS stock.

CVS is an undervalued stock, with a 44.07 percent sector discount on its price-to-earnings ratio. CVS stock is also selling at a 2.13x price to sales discount, showing that the market hasn’t yet factored in the company’s exceptional topline revenue.

CVS published predictions for key fiscal 2022 financial indicators that fell short of market expectations in the company’s Q4 2021 financial results presentation slides. Despite better-than-expected Q4 2021 profitability, the company did not revise its FY 2022 management prediction, which was first published on December 9, 2021 during its 2021 Investor Day.

The company’s sales forecast for this year was kept at $304-$309 billion, with non-GAAP adjusted profits per share of $8.10-$8.30. According to the mid-point of management guidance, CVS forecasts a mild +5% increase in top line (compared to +9% revenue growth in FY 2021) and a -2 percent fall in non-GAAP earnings per share in FY 2022.

During its Q4 2021 results call, CVS Health Corporation also released its key performance indicator predictions. “Vaccine volumes” and “in-store diagnostic testing volumes” are expected to plummet by 70-80 percent and 40-50 percent, respectively, this year, according to the company. In particular, CVS Health’s 2022 prediction excludes “a (COVID) increase later in the year” and “delivery of a fourth COVID-19 booster.” This appears plausible given the present state of affairs, with Omicron COVID-19 cases on the decline.

It’s also worth noting that analyst estimates for CVS Health Corporation have recently changed. These adjustments usually reflect the most recent short-term business trends, which are subject to change on a regular basis. As a result, analyst confidence about the company’s operations and profitability is reflected in favorable estimate revisions.

With a Strong Buy consensus recommendation based on 10 Buys and three Holds awarded in the last three months, Wall Street analysts definitely believe in CVS Health Corporation’s chances. The average CVS Health Corporation price objective of $118.79 suggests a potential upside of 14.57 percent.

The low-down

It seems that the fundamentals is considered strong. However, it would be wise for investors to wait for a lower price to enter the stock from a technical viewpoint.