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Why Is CVS Health (CVS) Up 0.1% Since Last Earnings Report?

Zacks Equity Research
·4-min read

A month has gone by since the last earnings report for CVS Health (CVS). Shares have added about 0.1% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is CVS Health due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

CVS Health Q1 Earnings Surpass Estimates, EPS View Cut

CVS Health first-quarter 2023 adjusted earnings per share of $2.20 declined 4.3% year over year but exceeded the Zacks Consensus Estimate by 6.3%. The adjusted EPS figure considers certain asset amortization costs, loss on assets held for sale, and other adjustments.

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On a reported basis, the company’s GAAP earnings were $1.65 per share, down 6.8% year over year.

Total revenues in the first quarter rose 11% year over year to $85.28 billion. The top line also beat the Zacks Consensus Estimate by 4.5%.

Quarter in Detail

The company recently realigned the composition of its segments. It created the Health Services segment (comprising the company’s pharmacy benefit management operations, health care services and provider enablement solutions) and the Pharmacy & Consumer Wellness segment (comprising enterprise pharmacy fulfillment and retail front store operations).

Health Services revenues were up 12.6% to $44.59 billion in the reported quarter. The upside was primarily driven by increased pharmacy claims volume, and growth in specialty pharmacy and brand inflation, partially offset by continued client price improvements.

Total pharmacy claims processed rose 3.7% on a 30-day equivalent basis, attributable to net new business, increased utilization and the impact of an elevated cough, cold and flu season, partially offset by a decrease in COVID-19 vaccinations. Excluding the impact of COVID-19 vaccinations, total pharmacy claims processed increased 4.8% on a 30-day equivalent basis.

Revenues from CVS Health’s Pharmacy & Consumer Wellness segment were up 7.8% year over year to $27.92 billion. The impressive growth was driven by increased prescription and front store volume, pharmacy drug mix and brand inflation. However, this growth was partially offset by continued pharmacy reimbursement pressure, decreased COVID-19 vaccinations and diagnostic testing and the impact of recent generic introductions.

Within the Health Care Benefits segment, the company registered revenues worth $25.89 billion in the first quarter, up 12.1% year over year driven by growth across all product lines.

Margin

Total cost (including Benefit Costs) rose 13.4% to $71.90 billion in the first quarter. Gross profit dropped 0.1% to $13.38 billion. The gross margin contracted 175 basis points (bps) to 15.7%.

The adjusted operating margin in the quarter under review contracted 85 bps to 4.5% on a 2.7% rise in operating expenses to $9.58 billion.

2023 Guidance

CVS Health reduced its adjusted EPS guidance for full-year 2023 to the band of $8.50 to $8.70 from $8.70 to $8.90. The Zacks Consensus Estimate for 2023 earnings is pegged at $8.76.

The company has reiterated its full-year operating cash flow projection in the range of $12.5 billion to $13.5 billion.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month.

The consensus estimate has shifted -7.8% due to these changes.

VGM Scores

At this time, CVS Health has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, CVS Health has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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