CVS Health (NYSE:CVS) has made a significant leadership change, replacing CEO Karen Lynch with David Joyner as the company has been struggling mightily this year. It also announced that its third-quarter earnings will fall short of expectations, yet again. For the troubled healthcare stock, it gives investors yet another reason to remain bearish on its outlook for both the short and long term.
The stock was down on the news and on a year-to-date basis, shares of CVS have fallen by more than 24%. Even over the past five years, the stock is now down around 10% as CVS hasn’t been a good buy for long-term investors.
The challenge for the business is in being able to find some consistency and stability in its earnings. At a minimum, it needs to find a way to be able to more accurately forecast its numbers to avoid such surprises and big earnings misses. For investors, there can be nothing more frustrating than a company continually falling short of expectations.
While the stock does appear to be cheap, trading at 11 times trailing earnings, the danger is that multiple may be misleading because as CVS’ earnings deteriorate, the ratio will rise, making the stock look more expensive in the process. And investors will want a discount to compensate for the risk involved with CVS’ business.
The stock is trading around multi-year lows but investors may be better off taking a wait-and-see approach with CVS right now given the uncertainty the business faces with a new CEO at the helm.
