Citi Becomes Latest Brokerage to Cut Outlook For CVS Stock

There's a heavy accumulation of call open interest at overhead strikes

by Josh Selway

Published on Mar 6, 2019 at 9:39 AM

CVS Health Corp (NYSE:CVS) has been getting wrecked this year. The stock began its descent back in December, shortly after touching a 52-week high of $82.15, and then it suffered a massive post-earnings bear gap last month, and has continued to slide. In fact, CVS shares closed at their lowest point in over five years yesterday, settling at $54.96. At last check this morning, CVS is down 1% at $54.44.

During this sell-off, a number of analysts have cut their outlooks for the pharmacy operator, including Citigroup this morning. The brokerage firm dropped its price target down to $68 from $94 -- though this obviously still represents a sizable premium to the stock's current price.

The real issue, however, is that this may not be the last bear note we see, since 12 of the 17 analysts in coverage still recommend buying the equity. As contrarians, we'd view this as a huge red flag for the underperforming security, since additional downgrades and/or price-target cuts could act as a headwind for CVS.

Bullish sentiment has also been spotted in the options arena. Most notably, near-term options traders are extremely call-heavy, based on the Schaeffer's put/call open interest ratio (SOIR) of 0.45 -- landing in the bottom percentile of its annual range. This is due to heavy open interest at the April 65, 70, and 75 calls, as well, as the May 60 and 70 calls. In the front-month March series, the 70 strike holds peak open interest.

Going off this, call open interest, and total open interest, is at an annual high. This accumulation of open interest at overhead call strikes is another reason the stock's upside potential looks grim.

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