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Should You Buy CVS Stock Ahead of Q3 Earnings?

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Shares of CVS Health (CVS - Free Report) fell 1.8% during regular trading Friday in a sign that investors might be a bit nervous about the pharmacy powerhouse ahead of its quarterly earnings release Tuesday. With that said, CVS is coming off a better-than-expected second quarter and looks ready to complete its Aetna (AET - Free Report) deal. So let’s see if investors should think about buying CVS stock ahead of its Q3 financial results.

Quick Q3 Overview

Earnings season has so far failed to help lift the market, with underwhelming results and guidance from giants such as Apple (AAPL - Free Report) and Amazon (AMZN - Free Report) . Yet, 75.2% of S&P 500 members have seen their total earnings surge 25.4% from the same period last year on a 9.3% revenue jump. Plus, 78.2% have beat EPS estimates and 64.1% have topped revenue estimates (also read: Earnings Estimates Coming Down).

CVS

As far as CVS is concerned, its stock price fell in October along with many others. But shares of CVS had climbed in the six months before that point. October also marked what could prove to be a pivotal point in the company’s history after the U.S. Department of Justice allowed CVS to move forward with its proposed acquisition of Aetna. CVS said it remains on track to close its $70 billion deal in the early part of the fourth quarter.

CVS’ plan to buy the health insurer comes amid a shifting healthcare and pharmaceutical landscape. This includes Amazon’s continued push into the pharmacy business, along with Walgreens Boots’ (WBA - Free Report) Rite Aid (RAD - Free Report) deal. Amid all of these changes, CVS saw its same-store prescription volume surge of 9.5% last quarter. Plus, the company’s same-store sales popped 5.9% and same-store pharmacy sales rose 8.3%.

Q3 Outlook

CVS is expected to see its third-quarter revenues pop 2.2% to reach $47.19 billion, based on our current Zacks Consensus Estimate. Last quarter, CVS’ net revenues rose 2.4% to $46.71 billion, which just passed our estimate. Meanwhile, same-store sales are projected to climb by 5.3% and same-store pharmacy sales are expected to be up 7.5%, based on our NFM estimates.

Looking a bit further down the road, CVS’ fiscal 2018 revenues are projected to climb 2.23% to hit $188.88 billion. Meanwhile, CVS fiscal 2019 revenues are expected to jump 4.4% over our 2018 estimate.

Moving onto the bottom end of the income statement, CVS is projected to post adjusted quarterly earnings of $1.71 per share. This would mark a 14% jump from the year-ago quarter. The company’s adjusted EPS figure surged 27% last quarter to come in above our $1.61 estimate. Investors should note that CVS’ fiscal 2018 earnings are projected to jump roughly 19.5%.

Earnings Trends

CVS’ quarterly earnings consensus has lost one penny on the back of a negative estimate revision within the past 60 days. However, CVS’ earnings consensus for fiscal 2018 and 2019 have climbed over the last 90 days.

The company also has a strong track record of quarterly earnings beats, including a 4.97% beat last quarter and a 6.47% beat in the first quarter. Yet, we can see that coming in above quarterly earnings estimates has not always led to strong stock price movement, even though it did in the previous two periods.

 

 

CVS is currently a Zacks Rank #3 (Hold) that also sports “A” grades for both Value and Growth in our Style Scores system to help it earn an overall “A” VGM score. Therefore, investors might want to consider CVS stock, especially if they are bullish on the potential of its Aetna deal.

CVS is scheduled to release its Q3 2018 financial results before the market opens on Tuesday, November 6.

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