A month has gone by since the last earnings report for CVS Health (CVS Quick QuoteCVS - Free Report) . Shares have added about 1.8% in that time frame, outperforming 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 catalysts.

CVS Health Q4 Earnings Top Estimates on Robust Health Care Benefit Sales

CVS Health’s fourth-quarter 2020 adjusted earnings per share of $1.30 declined 24.9% year over year but exceeded the Zacks Consensus Estimate by 4.8%. The adjusted EPS figure takes into account certain asset amortization costs, acquisition-related integration costs and receipt of fully reserved ACA risk corridor receivable along with other adjustments.

On a reported basis, the company’s earnings of 75 cents per share plunged 43.6% year over year.
Full-year adjusted EPS was $7.50, up 5.9% from the year-ago period. This also surpassed the Zacks Consensus Estimate by 0.9%.

Total revenues in the fourth quarter rose 3.9% year over year to $69.55 billion. The top line also beat the Zacks Consensus Estimate by 1.3%. Full-year 2020 total revenues were $268.71 billion, a 4.6% improvement from 2019. It also exceeded the Zacks Consensus Estimate by a close margin of 0.3%.

Quarter in Detail

Pharmacy Services revenues were down 1.9% to $36.36 billion in the reported quarter. Continued price compression and changes in net new business mix were partially offset by growth in specialty pharmacy and brand inflation.

Total pharmacy claims processed rose 0.7% on a 30-day equivalent basis, attributable to strong net new business.

Revenues from CVS Health’s Retail/LTC were up 6.6% year over year to $24.06 billion. In the quarter, increased prescription volume, COVID-19 diagnostic testing and brand inflation were partially offset by continued reimbursement pressure and the impact of recent generic introductions.

Front store revenues fell 1.6% year over year due to decreased customer traffic and reduced volume in cough and cold product sales primarily as a result of the pandemic. Prescription volume rose 2% on a 30-day equivalent basis on continued adoption of patient care programs. This was partially offset by reduced new therapy prescriptions like lower seasonal flu prescriptions as a result of the pandemic as well as decreased long-term care prescription volume.

Within Health Care Benefits segment, the company registered revenues worth $19.10 billion in the fourth quarter, up 11.4% 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 and the receipt of $313 million under the ACA's risk corridor program. 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- related investments.

Margin

Gross profit improved 9.2% to $27.1 billion. Gross margin expanded 185.3 basis points (bps) to 38.9%. Without considering benefit cost, adjusted operating margin in the quarter under review grew 123 bps to $25.4 billion on a 9.3% rise in adjusted operating profit to $17.67 billion.

2021 Outlook

CVS Health provided its 2021 adjusted earnings per share and cash flow guidance.

Adjusted earnings per share is expected in the band of $7.39-$7.55. The Zacks Consensus Estimate for 2021 earnings is pegged at $7.53.

Full-year operating cash flow is expected in the range of $12 billion-$12.50 billion.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -8.49% due to these changes.

VGM Scores

Currently, CVS Health has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. However, 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. It's no surprise CVS Health has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.