CVS Health (CVS) Stock Needs a Shot in the Arm

The next major support area on CVS Health's (CVS) chart is around $80.
By Bruce Kamich ,

NEW YORK (TheStreet) -- The charts of CVS Health Corp. (CVS) - Get Report are not looking healthy and a second opinion may only confirm our bearish view.

This chart of CVS, above, looks like a non-textbook top formation -- a complex head and shoulder top formation with a downward sloping neckline. The volume doesn't decline through the pattern, but the On-Balance-Volume line does peak at the end of July. We can also see the 50-day moving average go below the 200-day average, giving us what is called a dead cross.

This weekly chart shows a bearish crossover of the 10-week and 40-week moving averages with the Moving Average Convergence/Divergence oscillator (MACD) crossing below the zero line. Below current levels, the next major support area on this chart is around $80.

TheStreet Ratings team rates CVS HEALTH CORP as a Buy with a ratings score of A-. TheStreet Ratings Team has this to say about their recommendation:

We rate CVS HEALTH CORP (CVS) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, growth in earnings per share, increase in net income, good cash flow from operations and solid stock price performance. We feel its strengths outweigh the fact that the company shows low profit margins.

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth came in higher than the industry average of 3.5%. Since the same quarter one year prior, revenues rose by 10.3%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • CVS HEALTH CORP has improved earnings per share by 35.8% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, CVS HEALTH CORP increased its bottom line by earning $3.96 versus $3.75 in the prior year. This year, the market expects an improvement in earnings ($5.17 versus $3.96).
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Food & Staples Retailing industry. The net income increased by 31.4% when compared to the same quarter one year prior, rising from $948.00 million to $1,246.00 million.
  • Net operating cash flow has increased to $1,820.00 million or 10.63% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -7.82%.
  • Looking at where the stock is today compared to one year ago, we find that it is not only higher, but it has also clearly outperformed the rise in the S&P 500 over the same period. Although other factors naturally played a role, the company's strong earnings growth was key. The stock's price rise over the last year has driven it to a level which is somewhat expensive compared to the rest of its industry. We feel, however, that other strengths this company displays justify these higher price levels.
  • You can view the full analysis from the report here: CVS

Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of Jim Cramer, TheStreet or any of its contributors.

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