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CVS Health (CVS) Q3 Earnings Top Estimates, 2020 View Up

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CVS Health Corporation's (CVS - Free Report) third-quarter 2020 adjusted earnings per share (EPS) of $1.66 declined 9.8% year over year but exceeded the Zacks Consensus Estimate by 23.9%. 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 93 cents per share improved 20.5% year over year.

Total revenues in the third quarter rose 3.5% year over year to $67.06 billion. The top line also beat the Zacks Consensus Estimate by 0.8%.

Quarter in Detail

Pharmacy Services revenues were down 0.9% to $35.7 billion in the reported quarter. Client losses and continued price compression were partially offset by improvements in specialty pharmacy and brand inflation.

CVS Health Corporation Price, Consensus and EPS Surprise

CVS Health Corporation Price, Consensus and EPS Surprise

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

Total pharmacy claims processed rose 3.7% on a 30-day equivalent basis, attributable to strong net new business, partially offset by reduced new therapy prescriptions.

Revenues from CVS Health’s Retail/LTC were up 5.9% year over year to $22.73 billion. In the quarter, increased prescription volume, higher front store revenues, increased diagnostic testing and brand inflationwere partially offset by continued reimbursement pressure and the impact of recent generic introductions.

Front store revenues increased 2.7% year over year on strength in consumer health sales and an increase in basket size, partially offset by reduced customer traffic in the retail pharmacies due to the pandemic. Prescriptions filled too rose 4.6% on a 30-day equivalent basis on continued adoption of patient care programs. This was partially offset by reduced new therapy prescriptions.

Within Health Care Benefits segment, the company registered revenues worth $18.47 billion in the third 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 divestitures of Aetna’s standalone Medicare Part D prescription drug plans and Workers Compensation business, membership declines in the segment’s commercial products and planned COVID-19 related investments.

Margin

Gross profit improved 7.2% to $26.1 billion. Gross margin expanded 134 basis points (bps) to 38.9%. Operating margin in the quarter under review grew 212 bps to $26.3 billion on a 12.5% rise in operating profit to $17.6 billion.

Outlook

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

Adjusted EPS is expected in the band of $7.35-$7.45 (up from the earlier band of $7.14-$7.27). The Zacks Consensus Estimate for 2020 earnings is pegged at $7.24.

Full-year operating cash flow is expected in the range of $12.75 billion-$13.25 billion compared with the earlier projection of $11 billion-$11.5 billion.

Our Take

CVS Health ended the third quarter on a promising note with both earnings and revenues surpassing the respective Zacks Consensus Estimate. The COVID-19 pandemic affected third-quarter revenues in the Pharmacy Services segments as new therapy prescriptions reduced due to lower provider visits. However, the year-over-year Retail/LTC revenue rise was primarily driven by increased prescription volume and higher front store revenues. Increased guidance amid the pandemic scenario is another positive.

In a parallel press release, the company also announced about the stepping down of the company’s president and CEO, Larry J. Merlo effective Feb 1, 2021. Karen S. Lynch, the current executive vice president, CVS Health and president, Aetna, will take the position of the company's next president and CEO, effective Feb 1, 2021.

Zacks Rank and Key Picks

CVS Health currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader medical space are West Pharmaceutical Services, (WST - Free Report) , Thermo Fisher Scientific (TMO - Free Report) and Align Technology (ALGN - Free Report) .

West Pharmaceutical reported third-quarter 2020 adjusted EPS of $1.15, beating the Zacks Consensus Estimate by 13.9%. Net revenues of $548 million outpaced the consensus estimate by 7.2%. It currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Thermo Fisher, a Zacks Rank #2 company, reported third-quarter 2020 adjusted EPS of $5.63, beating the Zacks Consensus Estimate by 28.8%. Revenues of $8.52 billion outpaced the consensus mark by 10%.

Align Technology reported third-quarter 2020 adjusted EPS of $2.25, surpassing the Zacks Consensus Estimate by a stupendous 281.4%. Net revenues of $734.1 million exceeded the Zacks Consensus Estimate by 38%. It currently carries a Zacks Rank #2.

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