CVS has been on a role, up over 30% over the past year. However, it seems like the stock is getting into the overvalued levels. Although CVS will continue to get its steady share of business, investments at unreasonable valuations tend to do poorly. Below is an in depth look at the valuation metrics and stock chart.
Valuation: CVS Caremark's trailing 5 year valuation metrics suggest that the stock is overvalued as all of the metrics are above their respective 5 year averages. CVS Caremark's current P/B ratio is 1.5 and it has averaged 1.4 over the past 5 years with a high of 1.9 and low of 1.1. CVS Caremark's current P/S ratio is 0.6 and it has averaged 0.6 over the past 5 years with a high of 1.1 and low of 0.4. CVS Caremark's current P/E ratio is 17.4 and it has averaged 15.9 over the past 5 years with a high of 21.7 and low of 11.3.
Price Target: The consensus price target for the analysts who follow CVS Caremark is $49. That is upside of 9% from today's stock price of $44.75 and suggests that the stock is overvalued at these levels. This also suggests that the stock has limited upside and should be avoided at its current stock price.
Forward Valuation: CVS Caremark is currently trading at about $45 a share with analysts expecting EPS of $3.69 next year, an earnings increase of 13% y/y, for a forward P/E ratio of 12.1. Taking a look at the company's publically traded comparisons will give us a better idea of the stock's relative valuation. Walgreen (WAG) is currently trading at about $33 a share with analysts expecting EPS of $2.91 next year, an earnings increase of 11% y/y, for a forward P/E ratio of 11.5.
Express Scripts (ESRX) is currently trading at about $53 a share with analysts expecting EPS of $4.14 next year, an earnings increase of 17% y/y, for a forward P/E ratio of 12.8. MedcoHealth (MHS) is currently trading at about $69 a share with analysts expecting EPS of $4.72 next year, an earnings increase of 6% y/y, for a forward P/E ratio of 14.6. The mean forward P/E of CVS Caremark's competitors is 13 which suggests that CVS Caremark is fairly valued relative to its publically traded competitors.
Earnings Estimates: CVS Caremark has beat EPS estimates 2 times in the past 4 quarters. The company's EPS figures have come in between 0 cents and 2 cents from consensus estimates or about 0% to 3.6% from analyst estimates. The company's earnings come been relatively close to consensus estimates which suggests that analysts are good at projecting the company's results and share upside from earnings surprises will be limited.
Price Action: CVS Caremark is up 34.4% over the past year, outperforming the S&P 500, which is up 9.6%. Looking at the technicals, the stock is currently above its 50 day moving average, which sits at $43.75 and above its 200 day moving average, which sits at $38.29.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.