CVS Health's (CVS) Q1 Earnings Miss Estimates, Margins Up

Zacks Equity Research

1 May 2024 at 11:16 am·5-min read

CVS Health Corporation CVS posted adjusted earnings per share (EPS) of $1.31 in first-quarter 2024, down 40.5% year over year. The metric also missed the Zacks Consensus Estimate by 22.5%. The adjusted EPS figure considers certain asset amortization costs, loss on assets held for sale and other adjustments.

On a reported basis, the company’s GAAP earnings were 88 cents compared with the year-ago GAAP EPS of $1.65, down 46.7%.

Revenues

Revenues in the first quarter rose 3.7% year over year to $88.44 billion. However, the top line missed the Zacks Consensus Estimate by 0.9%. The year-over-year upside reflects strong growth in the Health Care Benefits and Pharmacy & Consumer Wellness segments.

Quarter in Detail

Health Services revenues were down 9.7% to $40.29 billion in the reported quarter. The downside was due to the previously-announced loss of a large client during the first quarter and continued pharmacy client price improvements. The downside was partially offset by the pharmacy drug mix, growth in specialty pharmacy and the acquisitions of Oak Street Health and Signify Health.

Total pharmacy claims processed declined 21.2% on a 30-day equivalent basis, driven by the loss of a large number of clients during first-quarter 2024.

Revenues in CVS Health’s Pharmacy & Consumer Wellness segment were up 2.9% year over year to $28.73 billion. The upside was primarily driven by increased prescription volume, including increased contributions from vaccinations and pharmacy drug mix.

Within the Health Care Benefits segment, the company registered revenues worth $32.24 billion in the first quarter, up 24.6% year over year. The upside was driven by growth in the Medicare and Commercial product lines.

Margin

Total costs fell 6.6% to $48.07 billion in the first quarter. Gross profit rose 19.3% to $40.36 billion. The gross margin expanded 598 basis points (bps) to 45.6%.

The adjusted operating margin in the quarter under review expanded 558 bps to 34% despite a 7.4% rise in operating expenses to $10.29 billion.

Liquidity Position

CVS Health exited the first quarter of 2024 with cash and cash equivalents of $9.80 billion compared with $8.19 billion at the end of fourth-quarter 2023. The long-term debt was $57.69 billion at the end of the first quarter of 2024 compared with $58.64 billion at the end of the fourth quarter.

CVS Health Corporation Price, Consensus and EPS Surprise

CVS Health Corporation price-consensus-eps-surprise-chart | CVS Health Corporation Quote

The cumulative net cash provided by operating activities at the end of the first quarter of 2024 was $4.90 billion compared with $7.44 billion in the year-ago period.

2024 Guidance

Acknowledging the likelihood that rising medical cost trends will persist for the rest of 2024, CVS Health updated EPS guidance for 2024.

The company expects adjusted EPS guidance for full-year 2024 to be at least $7.00 (down from the previous guidance of at least $8.30). The Zacks Consensus Estimate for 2024 earnings is pegged at $8.31.

Our Take

CVS Health exited first-quarter 2024 on a lower note, with earnings and revenues missing the Zacks Consensus Estimate. The company registered a year-over-year decline in the Health Services segment due to continued pharmacy client price improvements. Pharmacy & Consumer Wellness segment growth was also offset by recent generic introductions, persistent pharmacy reimbursement pressure and lower front store volume. The company lowered its EPS guidance for 2024, which is discouraging.

On a positive note, total revenues increased year over year, primarily driven by growth in the Health Care Benefits and Pharmacy & Consumer Wellness segments. Pharmacy drug mix, growth in specialty pharmacy and the acquisitions of Oak Street Health and Signify Health also contributed to the company’s first-quarter performance. The expansion of both margins looks encouraging.

Zacks Rank and Key Picks

CVS Health currently carries a Zacks Rank #4 (Sell).

Some better-ranked stocks in the broader medical space that have announced quarterly results are Align Technology, Inc. ALGN, ResMed Inc. RMD and Boston Scientific Corporation BSX.

Align Technology, carrying a Zacks Rank of 2 (Buy), reported adjusted EPS of $2.14 in first-quarter 2024, beating the Zacks Consensus Estimate by 8.1%. Revenues of $997.4 million outpaced the consensus mark by 2.6%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Align Technology has a long-term estimated growth rate of 6.9%. ALGN’s earnings surpassed estimates in three of the trailing four quarters and missed once, the average surprise being 5.9%.

ResMed reported adjusted EPS of $2.13 in third-quarter fiscal 2024, beating the Zacks Consensus Estimate by 10.9%. Revenues of $1.19 billion surpassed the Zacks Consensus Estimate by 1.9%. It currently carries a Zacks Rank #2.

ResMed has a long-term estimated growth rate of 10.9%. RMD’s earnings surpassed estimates in three of the trailing four quarters and missed once, the average surprise being 2.8%.

Boston Scientific reported adjusted EPS of 56 cents in first-quarter 2024, beating the Zacks Consensus Estimate by 9.8%. Revenues of $3.86 billion surpassed the Zacks Consensus Estimate by 4.9%. It currently carries a Zacks Rank #2.

Boston Scientific has a long-term estimated growth rate of 12.5%. BSX’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 7.5%.

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