CVS Health (NYSE: CVS) appears to be a safer bet in the current stock market correction, as it could see a pickup in sales of OTC products with the coronavirus outbreak. While the stock has declined due to the coronavirus/oil price war crisis, going by trends seen during the 2008 slowdown, it’s likely that it could bounce back strongly, though it may not outperform the broader market on the upside, when the crisis winds down. It should be noted that the stock has outperformed so far, as it fell only 18% compared to over a 21% fall for the broader index since Feb 2020. Similarly, during 2007-08 crisis, CVS stock saw a slower decline and recovery compared to the S&P 500.
Earlier this week on Monday, March 9, the stock markets saw their biggest sell off since the 2008 crisis. There were two distinct trends driving the sell-off. Firstly, the increasing number of Coronavirus cases outside China is causing mounting concerns of a global economic slowdown. Secondly, crude oil prices plummeted by more than 20% after Saudi Arabia increased production. CVS Health’s stock fell 4% on Monday and is down by a total of 18% since early February. There has been a continued drop over the last week or so considering the impact that the Coronavirus outbreak and a broader economic slowdown could have on its supply chain.
CVS may not face sales decline in the near term, in our view. It is the largest retail pharmaceuticals chain in the U.S. and it controls around a quarter of retail pharmacy market. With the Covid-19 outbreak the sales of some of the OTC products, including sanitizers, soaps, and sanitary products have increased, which could benefit CVS as well other retail outlets. What remains to be seen is any shortage of drugs in the U.S., given the supply chain disruptions from China. There could be a shortage of over two dozen drugs that may have ties to Asia Pacific, primarily China. While medical devices and pharmaceutical companies may have direct supply chain disruption issues with coronavirus outbreak in China, CVS Health with its U.S. based retail pharmacy business could be a safer bet for investors in the healthcare sector.
In this analysis, we take a look at how the company’s stock reacted to the economic crisis of 2008 and compare its performance with the S&P 500. View our complete dashboard analysis on 2007-08 vs. 2020 Crisis Comparison: How Did CVS Health Stock Fare Compared with S&P 500?
CVS Health Stock versus S&P 500 Over 2020 Coronavirus/Oil Price War Crisis
- CVS Health stock declined by about 4% on Monday, March 9th, and the stock is down by about 18% since February 1, after the WHO declared a global health emergency.
- The S&P 500 declined by 7.6% on Monday and has fallen by 21% since February 1.
CVS Health versus the S&P 500 During 2007-08 Financial Crisis
- CVS stock declined from levels of around $30 in October 2007 (the pre-crisis peak) to levels of around $21 in March 2009 (as the markets bottomed out) and recovered to levels of about $27 in early 2010.
- Through the crisis, CVS stock declined by as much as 30% from its approximate pre-crisis peak. This marked a relatively lower decline compared the broader S&P, which fell by as much as 51%.
- CVS stock recovered from the lows, rising by 26% between March 2009 and January 2010. In comparison, the S&P rose by about 48% over the same period.
- While CVS Health’s stock has declined due to the Coronavirus/Oil Price War crisis, going by trends seen during the 2008 slowdown, it’s likely that it could bounce back strongly, though it may not outperform the broader market on the upside, when the crisis winds down.
For more detailed charts and a timeline of the 2007-08 crisis, view our dashboard analysis 2007-08 vs. 2020 Crisis Comparison: How Did CVS Health Stock Fare Compared with S&P 500?
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