What The Buy Side Expects From CVS On Friday

May. 1.14 | About: CVS Health (CVS)

CVS Caremark Corp. (NYSE:CVS) is set to report FQ1 2014 earnings before the market opens on Friday, May 2nd. As we discussed last month in more detail, CVS Caremark will be the first of the three largest players in retail pharmacies to voluntarily give up sales of cigarettes and tobacco products by October 1st of this year. At the end of March, peer Walgreen (WAG) reported disappointing earnings, while in early April, we saw great numbers out of Rite Aid (NYSE:RAD). This quarter, we are seeing a wide range of estimates on CVS' earnings, signaling uncertainty around CVS given the mixed data. Here's what investors expect from CVS on Friday.

The information below is derived from data submitted to the Estimize.com platform by a set of Buy-side and Independent analyst contributors.

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(Click here to see estimates and interactive features for CVS)

The current Wall Street consensus expectation is for CVS to report 1.05 EPS and $32.538B revenue, while the current Estimize.com consensus from 17 Buy-side and Independent contributing analysts is $1.07 EPS and $32.516B in revenue. This quarter, the buy side, as represented by the Estimize.com community, is expecting CVS to beat EPS estimates from Wall Street by 2 cents per share, while coming up $22 million short on revenue.

Over the past six quarters, the consensus from Estimize.com has been more accurate than Wall Street in forecasting CVS's EPS and revenue 5 times each. By tapping into a wider range of contributors, including hedge fund analysts, asset managers, independent research shops, students and non-professional investors, Estimize has created a data set that is more accurate than Wall Street up to 69.5% of the time, but more importantly, it does a better job of representing the market's actual expectations.

The magnitude of the difference between the Wall Street and Estimize consensus numbers often identifies opportunities to take advantage of expectations that may not have been priced into the market. In this case, we are seeing a small to moderate difference of estimates between Estimize and Wall Street.

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The distribution of estimates published by analysts on the Estimize.com platform range from $1.02 to $1.18 EPS and from $32.117B to $32.700B in revenues. This quarter, we're seeing a wider range of estimates on CVS than usual.

The size of the distribution of estimates relative to previous quarters often signals whether or not the market is confident that it has priced in the expected earnings already. A wider distribution of EPS estimates signals less agreement in the market, which could mean greater volatility post-earnings.

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Throughout the quarter, both Wall Street and the Estimize community raised their EPS and revenue expectations. The Wall Street EPS consensus rose from 98 cents to $1.05, while the Estimize consensus climbed from 97 cents to $1.07. Meanwhile, the Wall Street revenue consensus increased from $32.110B to $32.538B, while the Estimize consensus rose from $32.225B to $32.516B. Timeliness is correlated with accuracy, and upward analyst revisions going into an earnings report are often a bullish indicator.

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The analyst with the highest estimate confidence rating this quarter is turbinecity, who projects $1.06 EPS and $32.569B in revenue. turbinecity was our Winter 2014 season winner, and is ranked 3rd overall among over 4,350 contributing analysts. Over the past two years, turbinecity has been more accurate than Wall Street in forecasting EPS and revenue 59% and 54% of the time, respectively, throughout over 2,000 estimates. Estimate confidence ratings are calculated through algorithms developed by deep quantitative research, which looks at correlations between analyst track records and tendencies as they relate to future accuracy. In this case, turbinecity expects CVS to beat the estimates on revenue, but report between the expectations of Wall Street and Estimize on EPS.

On Friday, CVS Caremark will be the third of the big 3 pharmacy chains to report earnings. So far, we saw great numbers from Rite Aid, but a disappointing report from Walgreen. Investors are showing a wide range of estimates on the Estimize.com platform, which signals uncertainty around this report. With that being said, the consensus from the community is that CVS will beat EPS estimates by 2 cents per share, but come up slightly short of Wall Street's revenue projection.

Disclosure: None.