CVS Health is a classic example of a company which illustrates the merits of strictly trading or investing according to the strict merits of the actual reported fundamentals, rather than the CVS share price trading by market sentiment alone.
Of course, in the current pandemic environment sentiment is even more inconsistent, and arguably now downright jittery, than the actual fundamentals of the pharmacy. An illustration of the divergence between reality of the CVS share price and sentiment is shown by the way the company has not only beaten earnings estimates on each of the last four occasions, yet the market still behaves as if it is looking down the steepest of binary cliffs edges.
Earnings surprises continues at CVS Health
Although it might be believed that even though CVS Health has offered up earnings surprises of an average of 15% both pre and post the pandemic, investors could be more charitable towards the CVS share price, as we approach the November 6 Q3 update from the group, we seem to have the same reticence revealing itself. Indeed, at the end of October the CVS share price dipped to $3 of their March floor at $52.04 intraday – a key level for most equity related stocks and markets.
The CVS Health enigma
However, what remains something of an enigma for both bulls and bears of the CVS share price is the way that the company has a market cap of $76bn, net debt of $74.5bn and total debt of $92bn. This total debt figure is clearly a problem, especially for those looking for value, and even though the full year revenue stands at $256bn. All of this suggests that especially in the present volatile environment, it would not take too much to go wrong for the financial wheels to come off the wagon at CVS Health.
Coincidentally, if some of the key financial metrics at CVS Health are offering mixed signals, the same could be argued as far as the newsflow in recent months, especially since the start of the COVID-19 crisis. Clearly, there has been a negative impact from initial 2020 disruption to walk-in clinics and patient visits, as well as higher labour costs and reduced disposable income.
Nevertheless, the rest of the tide appears to be running in CVS Health’s favour as far as fundamental factors – particularly initiatives to free up hospital beds and provide as much diagnosis, treatment and care at home.
The US Government boost to the CVS Health share price
The highlight in this respect has ironically been the latest significant piece of news – the US Government signing up the major pharmacies including CVX to serve as COVID-19 vaccination sites.
Ordinarily, one would have expect such a serious development to be transformational in terms of sentiment towards the CVS share price and any CVS share price forecast, especially as it was combined with news just a couple of days previously that CVS Health plans to expand rapid-result COVID-19 testing to nearly 1,000 sites by year-end, having administered more than 5 million COVID-19 tests since March.
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CVS Health share price: Q3 consensus earnings upgrade
Interestingly, the best of the good news of late actually came in after a major consensus earning upgrade for Q3. This consisted of a Q3 earnings upgrade from $1.32 to $1.75 per share for the CVS share price, with the full year number raised to $9.50 per share from $7.23.
All of this, along with investors of late being overly pessimistic in their attitude to the CVS share price and earnings suggest that the divergence between expectation and reality could be as great as ever. This is especially so given the cautious added to the equation by the aftermath of the US Presidential election and potential plans to lower drugs cost, and tip the sector in favour of the consumer due to the pandemic.
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