CVS Health Corp (CVS), a leading player in the U.S. healthcare sector known for its extensive pharmacy services and health insurance offerings, recently reported its second-quarter earnings. The company has delivered solid results on some fronts but also revised its profit outlook downward, signaling a challenging road ahead.
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CVS Health posted a second-quarter adjusted EPS of $1.83, surpassing analysts’ expectations of $1.73. However, despite this positive earnings surprise, the company significantly cut its full-year profit forecast. The new projection for adjusted EPS is between $6.40 and $6.65, down from at least $7.00. This marks the third time CVS has lowered its 2024 profit outlook.
CVS Revenue Up, But Costs Weigh Heavily
CVS Health’s second-quarter results reveal a 2.6% rise in total revenues to $91.2 billion, driven by robust performances in its Health Services and Pharmacy & Consumer Wellness segments. However, increased medical costs and ongoing challenges in the Health Care Benefits segment led to a decline in adjusted operating income.
CVS Segment Performance
The Health Care Benefits segment experienced a 16.4% drop in adjusted operating income due to higher utilization and adverse impacts from Medicare Advantage star ratings. Despite this, medical membership grew by 200,000, reaching 27 million as of June 30, 2024.
Revenue in the Health Services segment fell by 8.8%, largely due to the loss of a significant client, but adjusted operating income saw a slight increase of 1.1% due to improved purchasing economics. Meanwhile, the Pharmacy & Consumer Wellness segment’s revenue rose by 3.7% on the back of higher prescription volumes, though its adjusted operating income decreased by 12% due to ongoing pharmacy reimbursement pressures and reduced front store volume following the end of the COVID-19 public health emergency.
According to the TipRanks Sales Breakdown tool, Health Services accounted for 52.22% of revenues, while Pharmacy and Consumer Wellness followed with 32.6%, and Health Care Benefits contributed 29.5%.
CVS CEO’s Perspective
Karen S. Lynch, CVS Health President and CEO, highlighted the company’s various strengths, emphasizing CVS’s focus on transparent pharmacy reimbursement models and biosimilars to enhance patient outcomes. She also announced leadership changes in the Health Care Benefits segment, with Lynch herself stepping in to take direct leadership.
CVS Forward Guidance
CVS revised its full-year 2024 GAAP diluted EPS guidance to a range of $4.95 to $5.20, down from at least $5.64. The company also lowered its cash flow from operations guidance to approximately $9.0 billion, from at least $10.5 billion previously. These adjustments reflect continued pressure in the Health Care Benefits segment, but strong performances in Health Services and Pharmacy & Consumer Wellness are expected to provide some balance.
Is CVS Stock Good to Buy?
Analysts are split on CVS stock, with half recommending a Buy and the other half advising a Hold. Over the past year, CVS has decreased by almost 18%, and the average CVS price target of $67.42 implies an upside potential of 15.56% from current levels. These analyst ratings are likely to change following CVS’s results from today.
