Warren Buffett once said to be greedy when others are fearful. Some analysts are favoring this approach in CVS Health Corp. (CVS) after Wednesday's big earnings decline.
With shares down as much as 9% after its disappointing guidance, this might not be a cause for panic for value investors.
"We are keeping our ONE rating [indicating a buy] on the stock because there is still value here and we will continue to battle as long as there is value," Jim Cramer's Action Alerts Team said about their position.
The team added that the 3.15% dividend yield for the relatively cheap stock, compared to peers, should provide some pacification. This is especially the case as the stock has retreated to about the level it traded at two weeks ago.
"We will be lowering our price target to $84, which reflects a roughly 12x multiple on a now $7 adjusted earnings per share target," the team explained. "Indeed, this figure is above management's guidance range, but we are optimistic in that this was just a reset of the earnings base, leading to better than feared results as we move through 2019 and into 2020, when all this year's investments/initiatives really pay off."
The team wasn't the only CVS watcher eyeing the opportunity.
"We expect that the stock has now offered a floor with the initial guide," Leerink Partners analyst Ana Gupte said, maintaining an "Outperform" rating on the stock. "[We] can see deep-value investors potentially stepping in."
Gupte set a $100 price target for those seeking this deep value, suggesting a significant upside.
The peer comparison was a prescient one on Wall Street.
"While the guidance was very disappointing, we still believe in the long-term vision and strategy," JP Morgan analyst Lisa Gill said Wednesday morning. "Based on where the stock is currently indicated and the midpoint of the FY19 adjusted EPS guidance range, shares are trading at ~9.5x, which is one of the lowest multiples across the Rx channel."
The continued pressure on shares has sweetened that deal even further, according to FactSet.
To be sure, there were analysts indicating they no longer believe in the company from an execution standpoint as it attempts to integrate multiple major mergers and acquisitions.
"CVS has failed to improve operations after two years of pressure and continues to struggle with its Omnicare LTC acquisition, setting up 2019 as a weaker than expected year," warned Wells Fargo analyst Peter Costa. "CVS expects the ongoing business pressures to have an outsized impact on 2019, making it a transition year beyond the obvious need to integrate the Aetna acquisition."
As a result of the mistrust, he slashed his price target from a lofty $104 per share to $68 and downgraded the stock to "Market Perform."
"We believe 2019 is a transition year," he explained. "While we believe long term CVS is positioned to weather changes to the PBM/retail pharmacy business from increased use of narrow networks, pricing transparency, and other competitive pressure, its recently closed acquisition of Aetna could eventually create an integrated healthcare platform, better positioning it for competitive threats."
Given the earnings report and market reaction, there is good reason for caution.
It will come down to investment strategy and trust-level for investors to decide whether or not to get greedy or keep their guard up.