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Can Pharmacy Services Drive CVS Health's (CVS) Q4 Earnings?
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CVS Health (CVS - Free Report) is scheduled to report fourth-quarter 2017 results on Feb 8, before the opening bell. Last quarter, the company delivered a positive earnings surprise of 0.7%. Its trailing four-quarter average positive earnings surprise is 2.7%.
Let’s take a look at how things are shaping up prior to this announcement.
Key Catalysts
CVS Health is optimistic about sustaining the solid year-over-year earnings trend in 2017 on gains to be realized from the Pharmacy Services segment. The performance is being driven by higher specialty pharmacy and pharmacy network claim volumes as well as brand inflation. Management stated that the company’s specialty business is its top priority in gaining new and retaining existing customers. CVS Health is poised to capitalize on this opportunity on the back of wide and differentiated offerings, including Specialty Connect.
Management expects drug price inflation, product launches, higher utilization and new PBM clients to fuel growth. We expect the Pharmacy Services segment to be a stable growth platform.
In this regard, we are also impressed with CVS Health’s robust PBM selling season, reflecting solid progress from last quarter. While gross new business totaled $6 billion, net new business reached $2.3 billion. These figures take into account the FEP (Federal Employee Program) specialty contract loss but exclude the impact from individual Medicare Part D program.
However, increased generic dispensing and price compression have been partially offsetting growth in this space. Moreover, there are several timing factors that have affected the cadence of profit delivery last quarter. One such aspect was the timing of profitability in Medicare Part D business. Per the company, the same is expected to continue through the fourth-quarter as well.
Largely due to weaker margin performance in the PBM client and retail network claims administration process, CVS Health now expects adjusted operating profit growth in mid-teens at the Pharmacy Services segment for fourth-quarter 2017 and around 4% for full-year 2017.
Apart from the timing of Medicare Part D profitability, the company expects higher benefits from the streamlining initiatives in the back half of the year. Taking that into consideration, the company projected fourth-quarter adjusted earnings per share and consolidated operating profit growth at the low end of the $1.88-$1.92 and 5.75-8% range, respectively.
Here are some other factors that might also influence CVS Health’s fourth-quarter results:
The company maintains fourth-quarter operating loss projection for its Retail/LTC segment at the low end of the 1.0% to 3.5% range, largely due to restricted network changes. Notably, the decision to restrict CVS Health from participating in the TRICARE network and many fully insured prime networks have continued to affect Pharmacy sales and script comps. Moreover, total same-store sales are expected to decline 1-2.8% in the yet-to-be-reported quarter.
However, the company has been striving to return to growth in the Retail/LTC business. Management claims that CVS Health is focused on working with all payers to drive volumes and capture market share. The company’s tie-up with OptumRx, part of UnitedHealth Group (UNH - Free Report) , to provide a 90-day Pharmacy solution to OptumRx commercial clients was made available at the beginning of last July. CVS Health is also poised to gain from programs such as Health Tag and ExtraCare Health Card.
The company is planning to collaborate with PBMs (Pharmacy Benefit Management) and health plans to offer a menu of services such as MinuteClinic services, Infusion and Long Term Care. Also, Store Brands is an area of both strength and opportunity for CVS Health. The company’s latest initiatives like next-day and same-day delivery and automatic refills of prescriptions with a text message also seem promising.
Notably, for the fourth quarter, the company’s adjusted script comps are expected to rise 1-2%.
CVS Health has projected a 2.5-4.25% rise in consolidated net revenues during the fourth quarter. Specialty business is expected to record strong growth and the SilverScript business is likely to maintain momentum. The Zacks Consensus Estimate for fourth-quarter total revenues of $47.58 billion reflects a 3.5% increase year over year.
Aetna Deal: The company’s latest announcement to buy all outstanding shares of a diversified health care benefits company — Aetna — in a total transaction value of $77 billion is also encouraging. On the deal’s closure (expected in the second half of 2018), CVS Health estimates $750 million of near-term synergies with low to mid-single digit accretion in the second year post the completion of the transaction.
Here is what our quantitative model predicts:
Our proven model does not conclusively show that CVS Health is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a solid Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. But that is not the case here, as you will see below.
Zacks ESP: CVS Health has an Earnings ESP of -0.13%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: CVS Health carries a Zacks Rank #3.
Meanwhile, the Zacks Consensus Estimate for fourth-quarter adjusted EPS of $1.89 billion reflects a 10.5% increase year over year.
Stocks to Consider
Here are a few medical stocks worth considering as these have the right combination of elements to beat earnings this time around:
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Can Pharmacy Services Drive CVS Health's (CVS) Q4 Earnings?
CVS Health (CVS - Free Report) is scheduled to report fourth-quarter 2017 results on Feb 8, before the opening bell. Last quarter, the company delivered a positive earnings surprise of 0.7%. Its trailing four-quarter average positive earnings surprise is 2.7%.
Let’s take a look at how things are shaping up prior to this announcement.
Key Catalysts
CVS Health is optimistic about sustaining the solid year-over-year earnings trend in 2017 on gains to be realized from the Pharmacy Services segment. The performance is being driven by higher specialty pharmacy and pharmacy network claim volumes as well as brand inflation. Management stated that the company’s specialty business is its top priority in gaining new and retaining existing customers. CVS Health is poised to capitalize on this opportunity on the back of wide and differentiated offerings, including Specialty Connect.
Management expects drug price inflation, product launches, higher utilization and new PBM clients to fuel growth. We expect the Pharmacy Services segment to be a stable growth platform.
In this regard, we are also impressed with CVS Health’s robust PBM selling season, reflecting solid progress from last quarter. While gross new business totaled $6 billion, net new business reached $2.3 billion. These figures take into account the FEP (Federal Employee Program) specialty contract loss but exclude the impact from individual Medicare Part D program.
CVS Health Corporation Price and EPS Surprise
CVS Health Corporation Price and EPS Surprise | CVS Health Corporation Quote
However, increased generic dispensing and price compression have been partially offsetting growth in this space. Moreover, there are several timing factors that have affected the cadence of profit delivery last quarter. One such aspect was the timing of profitability in Medicare Part D business. Per the company, the same is expected to continue through the fourth-quarter as well.
Largely due to weaker margin performance in the PBM client and retail network claims administration process, CVS Health now expects adjusted operating profit growth in mid-teens at the Pharmacy Services segment for fourth-quarter 2017 and around 4% for full-year 2017.
Apart from the timing of Medicare Part D profitability, the company expects higher benefits from the streamlining initiatives in the back half of the year. Taking that into consideration, the company projected fourth-quarter adjusted earnings per share and consolidated operating profit growth at the low end of the $1.88-$1.92 and 5.75-8% range, respectively.
Here are some other factors that might also influence CVS Health’s fourth-quarter results:
The company maintains fourth-quarter operating loss projection for its Retail/LTC segment at the low end of the 1.0% to 3.5% range, largely due to restricted network changes. Notably, the decision to restrict CVS Health from participating in the TRICARE network and many fully insured prime networks have continued to affect Pharmacy sales and script comps. Moreover, total same-store sales are expected to decline 1-2.8% in the yet-to-be-reported quarter.
However, the company has been striving to return to growth in the Retail/LTC business. Management claims that CVS Health is focused on working with all payers to drive volumes and capture market share. The company’s tie-up with OptumRx, part of UnitedHealth Group (UNH - Free Report) , to provide a 90-day Pharmacy solution to OptumRx commercial clients was made available at the beginning of last July. CVS Health is also poised to gain from programs such as Health Tag and ExtraCare Health Card.
The company is planning to collaborate with PBMs (Pharmacy Benefit Management) and health plans to offer a menu of services such as MinuteClinic services, Infusion and Long Term Care. Also, Store Brands is an area of both strength and opportunity for CVS Health. The company’s latest initiatives like next-day and same-day delivery and automatic refills of prescriptions with a text message also seem promising.
Notably, for the fourth quarter, the company’s adjusted script comps are expected to rise 1-2%.
CVS Health has projected a 2.5-4.25% rise in consolidated net revenues during the fourth quarter. Specialty business is expected to record strong growth and the SilverScript business is likely to maintain momentum. The Zacks Consensus Estimate for fourth-quarter total revenues of $47.58 billion reflects a 3.5% increase year over year.
Aetna Deal: The company’s latest announcement to buy all outstanding shares of a diversified health care benefits company — Aetna — in a total transaction value of $77 billion is also encouraging. On the deal’s closure (expected in the second half of 2018), CVS Health estimates $750 million of near-term synergies with low to mid-single digit accretion in the second year post the completion of the transaction.
Here is what our quantitative model predicts:
Our proven model does not conclusively show that CVS Health is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a solid Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. But that is not the case here, as you will see below.
Zacks ESP: CVS Health has an Earnings ESP of -0.13%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: CVS Health carries a Zacks Rank #3.
Meanwhile, the Zacks Consensus Estimate for fourth-quarter adjusted EPS of $1.89 billion reflects a 10.5% increase year over year.
Stocks to Consider
Here are a few medical stocks worth considering as these have the right combination of elements to beat earnings this time around:
Amphastar Pharmaceuticals (AMPH - Free Report) has an Earnings ESP of +194.12% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Don’t Even Think About Buying Bitcoin Until You Read This
The most popular cryptocurrency skyrocketed last year, giving some investors the chance to bank 20X returns or even more. Those gains, however, came with serious volatility and risk. Bitcoin sank 25% or more 3 times in 2017.
Zacks’ has just released a new Special Report to help readers capitalize on the explosive profit potential of Bitcoin and the other cryptocurrencies with significantly less volatility than buying them directly.
See 4 crypto-related stocks now >>