CVS Health Corp: Possible Bullish Divergence on the MACD Heading Into Earnings

CVS Health Corp (NYSE: CVS) is set to announce its earnings tomorrow.. As of February 11, 2025, the stock is trading at $54.31.

Valuation Metrics

CVS Health's trailing twelve months (TTM) Price-to-Earnings (P/E) ratio is 13.79, and its forward P/E ratio is 9.70, indicating expectations of earnings growth. The Price-to-Sales (P/S) ratio stands at 0.19, and the Price-to-Book (P/B) ratio is 0.91, suggesting the stock is trading below its book value.

Fundamental Analysis

In the third quarter of 2024, CVS reported a 6.3% increase in revenue, totaling $95.43 billion. However, net income experienced a significant decline of 96%, primarily due to restructuring charges. The company has faced challenges in its Medicare Advantage and Medicaid segments, leading to multiple downward revisions of its earnings forecast throughout the year.

The company's net debt has risen to $50 billion, raising concerns about its financial leverage. Despite these challenges, CVS maintains a strong presence in the healthcare sector through its pharmacy benefit manager, insurance unit, and retail pharmacy chains.

Technical Analysis

From a technical perspective, the Moving Average Convergence Divergence (MACD) indicator is suggesting a bullish divergence, as it has formed a higher high while the price has formed a higher low. Resistance is anticipated along the white trendline, ranging between $59 and $60, heading into the earnings report. On the downside, support levels are identified at $52.71, followed by the December low of $43.56.

Investment Considerations

CVS Health is undergoing significant leadership changes, with new CEO David Joyner implementing turnaround initiatives to address rising medical costs and previous earnings shortfalls. Investors are closely monitoring these efforts to assess their effectiveness in revitalizing the company's performance.

Analysts have mixed opinions on CVS's valuation. Some suggest that the stock is undervalued, trading at a significant discount compared to its intrinsic value.

However, concerns about the company's debt levels and challenges in its core business segments persist.

Conclusion

While CVS Health faces several challenges, including high debt and pressures in its healthcare segments, the company's strategic initiatives and leadership changes may offer potential for recovery. Investors should monitor the upcoming earnings report and the effectiveness of the company's turnaround strategies to make informed decisions.

(Sources: alphaspread.com, reuters.com, ft.com, ChatGPT)