1 Stock to Buy, 1 Stock to Sell This Week: Arista Networks, CVS Health
Arista Networks (ANET) Stock Analysis
Arista Networks (ANET) released its third-quarter fiscal 2023 results on January 23rd and the market rewarded the networking specialist with a 9% pop in share price that day. Both earnings per share (EPS) and revenue came in above analyst estimates. EPS hit $1.15, while analysts were expecting $1.12. Revenue reached $1.12 billion, above the $1.09 billion estimate. Arista has benefited from the increased use of cloud computing, a trend that has accelerated in the post-pandemic era with the rise of hybrid work.
Investing in Arista is not a new concept on The Motley Fool, but the company has quietly been putting up some strong numbers. Revenue rose 29% year over year in Q3, and EPS improved by 43%. This growth is expected to continue, with the company forecasting 20% revenue growth in fiscal 2024.
In terms of valuation, the stock trades at a price-to-earnings (P/E) ratio of 36, which is below Arista's five-year average P/E ratio of 43. This suggests that the stock is relatively undervalued, especially given its strong growth prospects.
From a technical analysis perspective, Arista Networks is in a bullish trend, having broken out of a multi-month trading range in December 2022. The stock is currently trading above its 50-day and 200-day moving averages, which is a sign of strength.
Key Points for Arista Networks (ANET):
- EPS: $1.15, above the $1.12 estimate
- Revenue: $1.12 billion, above the $1.09 billion estimate
- Revenue grew 29% year over year
- EPS improved by 43% year over year
- The company forecasts 20% revenue growth in fiscal 2024
- The stock trades at a P/E ratio of 36, below its five-year average
- Arista Networks is in a bullish trend
CVS Health (CVS) Stock Analysis
CVS Health (CVS) is struggling to find its footing this year, and its recent financial results show why. The company missed analyst estimates for both EPS and revenue in the fourth quarter of 2022 and issued disappointing guidance for 2023.
For Q4, CVS Health reported EPS of $2.28, below the $2.35 estimate, and revenue of $33.3 billion, below the $33.6 billion estimate. The company also forecast 2023 EPS to be in the range of $8.70 to $8.90, below the $9.00 to $9.20 estimate. CVS cited inflation and labor costs as headwinds.
The stock market did not take the news well, and CVS Health shares fell 5% after the earnings release. The company has now fallen 15% since the start of the year. In terms of valuation, CVS Health trades at a P/E ratio of 10, which is below its five-year average of 12, suggesting that the stock may be undervalued.
However, from a technical analysis perspective, CVS Health is in a bearish trend, having broken below its 50-day and 200-day moving averages. The stock is also trading below a key support level at $90.
Key Points for CVS Health (CVS):
- EPS: $2.28, below the $2.35 estimate
- Revenue: $33.3 billion, below the $33.6 billion estimate
- The company forecast 2023 EPS to be in the range of $8.70 to $8.90, below the $9.00 to $9.20 estimate
- CVS cited inflation and labor costs as headwinds
- The stock has fallen 15% since the start of the year
- CVS Health trades at a P/E ratio of 10, below its five-year average
- CVS Health is in a bearish trend
Which Stock to Buy and Sell This Week?
Given the choice, I would buy Arista Networks (ANET) and sell CVS Health (CVS) this week. Arista Networks is a high-growth company with a strong balance sheet and a bright future. CVS Health, on the other hand, is facing headwinds and its outlook is less certain.
