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Why Is CVS Health (CVS) Down 5.7% Since Last Earnings Report?

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A month has gone by since the last earnings report for CVS Health (CVS - Free Report) . Shares have lost about 5.7% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is CVS Health due for a breakout? 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 catalysts.

CVS Health Q2 Earnings Top Estimates on Robust Health Care Benefit Sales

CVS Health's second-quarter 2020 adjusted earnings per share (EPS) of $2.64 increased 39.7% year over year and exceeded the Zacks Consensus Estimate by 36.8%. The adjusted EPS figure takes into account certain integration costs pertaining to the buyout of Aetna and asset amortization costs along with other adjustments.

On a reported basis, the company’s earnings of $2.26 per share improved 51.7% year over year.

Total revenues in the second quarter rose 3% year over year to $65.34 billion. The top line also beat the Zacks Consensus Estimate by 1.9%.

Quarter in Detail
    

Pharmacy Services revenues were up a marginal 0.1% to $34.89 billion in the reported quarter. Growth was sluggish as year-over-year improvements in specialty pharmacy and brand inflation were largely offset by client losses and continued price compression.

Total pharmacy claims processed rose 3.4% on a 30-day equivalent basis, attributable to strong net new business, partially offset by reduced new therapy prescriptions on lower provider visits.

Revenues from CVS Health’s Retail/LTC were up 1% year over year to $21.66 billion. In the quarter, favorable pharmacy drug mix, growth in retail pharmacy prescription volume and brand inflation were partially offset by continued reimbursement pressure, the impact of recent generic introductions, decreased long-term care prescription volume and lower front store revenues.

Front store revenues decreased 4.6% year over year on reduced customer traffic in the retail pharmacies due to shelter-in-place orders. Prescriptions filled too dropped 1.1% on a 30-day equivalent basis on reduced new therapy prescriptions due to lower provider visits through the second quarter and decreased long-term care prescription volume. This was partially offset by the continued adoption of patient care programs.

Within Health Care Benefits segment, the company registered revenues worth $18.47 billion in the second quarter, up 6.1% year over year. The improvement was primarily driven by membership growth in the Health Care Benefits segment's government products and favorable impact of the reinstatement of the HIF (Health Insurer Fee) for 2020. This was partially offset by the absence of the financial results of Aetna's standalone Medicare Part D prescription drug plans (PDPs) and membership declines in Commercial insured products.

Margin

Gross profit improved 17.4% to $13.3 billion. Gross margin expanded 250 basis points (bps) to 20.4% in spite of 0.1% decline in total cost of product sold and benefit costs. Operating margin in the quarter under review grew 191 bps to $7.16 billion on a 40.5% rise in operating profit to $4.68 billion.

Outlook

CVS Health raised its 2020 adjusted EPS and cash flow guidance.

Adjusted EPS is expected in the band of $7.14-$7.27 (from the earlier band of $7.04-$7.17). The Zacks Consensus Estimate for 2020 earnings is pegged at $7.11.

Full-year operating cash flow is expected in the range of $11 billion-$11.5 billion compared with the earlier projection of $10.5 billion-$11.0 billion.

Further, the company projects higher utilization in its Health Care Benefits segment in the second half of 2020 than in the first half and continued significant COVID-19 related investments in the remainder of the year.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month. The consensus estimate has shifted -16.31% due to these changes.

VGM Scores

Currently, CVS Health has a great Growth Score of A, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top 20% 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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