A Technical Take On CVS And Its Correlation With Walgreens

CVS Health Corporation (Ticker Symbol: CVS) and Walgreens Boots Alliance Inc. (Ticker Symbol: WBAWealth Strength IndexWBA is Extremely Up and trending Up) are the two largest pharmaceutical chains in the United States. Below is a technical take on CVS’s stock’s performance over the past two-and-a-half decades including how both companies have traded together and a snapshot of Wall Street’s average price targets for each company.

The image above is a long-term chart of CVS’s stock over the last twenty-five years. In the middle of the 1990s, the stock was a great beneficiary of the bull market that occurred during that decade and saw steady stock appreciation. CVS held up well in the dotcom crash of 2000, and though the stock had some rough patches in 2002, the stock rallied for five years straight until the great recession in 2008.

CVS spent the next four years trading in a symmetrical triangle pattern. Symmetrical triangles are usually viewed as areas of indecisiveness. Moves higher are quickly met by selling while dips are met with buying. Each new lower top and higher bottom becomes more shallow than the last, taking on the shape of a sideways triangle. CVS broke out from its triangle to the upside and went on to rally over 100% and traded to an all-time high on July 25th, 2015 at the price $113.65.  The stock has spent the last four years pulling back from those levels and has now come down to a more reasonable valuation.

The image above is a weekly chart that has both CVS and Walgreens stock overlayed on it over the past  20 years. Both of the two stocks have had relatively high levels of correlation with each other over this period of time.  The highlighted boxed areas represent periods of time when they were not trading in tandem and they lost their correlation or it wasn’t as great at the prior periods. Both stocks have come across hard times as of late.  Currently, both CVS and Walgreens are trading negatively for the year.

Based on a survey of 34 analysts offering 12-month price targets, the average price target for CVS’s stock is $74.83. According to that number, the stock is priced at a slight discount relative to Wall Street’s analysts and could be considered undervalued around current levels near $61.50.

Based on a survey of five analysts offering 12-month price targets, the average price target for Walgreens’ stock is $57.50. According to that number, the stock is priced at a discount relative to Wall Street’s analysts and could be considered undervalued around current levels near $52.83.

Investors in both of the pharmaceutical giants should look to Walgreens’ next earnings release on October 28th or CVS’s next earnings release on November 6th for fresh news within the sector.

 


Wealth365, Inc. wants to ensure you understand that trading and investments have large potential rewards, but also large potential risk. Wealth365 contributors and staff writers may have previously had, currently have, or plan to add securities they write about as a part of their trading or investment portfolio. Trading and investment strategies mentioned in Wealth365 videos or articles may not be suitable for you and you should make your own independent decision regarding them.This material does not take into account your particular investment objectives, financial situation or needs and is not intended as recommendations appropriate for you. You should strongly consider seeking advice from your own investment advisor. Review our full terms of use and additional risk disclosures here.