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CVS Health (CVS) Pharmacy Claims Volume Grows, Margin Woes Stay
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CVS Health Corporation (CVS - Free Report) has been registering solid performances across all three operating segments. High pharmacy claims volume, specialty pharmacy growth and brand inflation have been aiding the Pharmacy Services arm. However, weak margins and stiff competition do not bode well. The stock currently carries a Zacks Rank #3 (Hold).
Over the past year, CVS Health outperformed its industry. The stock has gained 15.1% compared to the 2.3% growth of the industry.
CVS Health’s first-quarter 2022 earnings and revenues beat the Zacks Consensus Estimate. The impressive top-line performance was driven by sales growth across all three operating segments. Within pharmacy services, the company recorded strong revenue growth on increased pharmacy claims volume, growth in specialty pharmacy and brand inflation. The retail/long-term care segment reported revenue growth of 9.2% year over year, largely attributable to increased prescription and front store volume.
At the same time, healthcare benefits revenues rose 12.8% year over year on membership growth across all product lines. The company recorded a medical benefit ratio of 83.5% within the commercial business, indicating continued progression toward normalized total medical costs.
CVS Health administered more than 6 million COVID-19 tests and above 8 million COVID-19 vaccines nationwide in the first quarter. The company’s continued investments in constructing affordable housing units in Denver, Fresno, Nashville and San Antonio to address housing insecurities and enhance access to health care services in underserved communities seem encouraging. The raised EPS guidance for 2022 is indicative that this growth momentum will continue.
On the flip side, in first-quarter 2022, gross margin contracted 69 basis points (bps) to 17.4% on a 12.1% uptick in total cost (including Benefit Cost). Meanwhile, operating costs in the quarter rose 10.7% year over year, resulting in a 2.4% drop in operating profit, with a 63-bp contraction in operating margin to 4.5%. The decline in operating profit can be attributed to the development of a legal settlement accrual related to the pending agreement with the state of Florida to settle all opioid claims against CVS Health. The rise in operating costs and contraction of both margins are building pressure on the company’s bottom line. Further, an ongoing difficult pharmaceutical reimbursement scenario along with escalating drug prices is hurting demand for the company’s offerings.
Further, the reimbursement pressure in the Pharmacy Services segment is projected to be exacerbated by the cumulative effect on rebate guarantees of lower brand name drug price inflation and a modest selling season. On its first-quarter 2022 earnings call, the company noted that within pharmacy, reimbursement pressure continues despite some stabilization in the current year. The company is making continued efforts to combat this reimbursement pressure by increasing volume and reducing costs.
Key Picks
A few better-ranked stocks in the broader medical space that investors can consider are AMN Healthcare Services, Inc. (AMN - Free Report) , Merck & Co., Inc. (MRK - Free Report) and Patterson Companies, Inc. (PDCO - Free Report) .
AMN Healthcare has a long-term earnings growth rate of 1.1%. The company surpassed earnings estimates in the trailing four quarters, delivering a surprise of 15.6%, on average. It currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
AMN Healthcare has outperformed its industry in the past year. AMN has gained 20.1% against the industry’s 33.3% fall.
Merck has a long-term earnings growth rate of 10.1%. The company surpassed earnings estimates in the trailing three quarters and missed in one, delivering a surprise of 13.4%, on average. It currently carries a Zacks Rank #1.
Merck has outperformed its industry in the past year. MRK has gained 21.5% against the industry’s 16.1% growth.
Patterson Companies has an estimated long-term growth rate of 9.6%. The company’s earnings surpassed estimates in all the trailing four quarters, the average beat being 16.5%. It currently has a Zacks Rank #2 (Buy).
Patterson Companies has outperformed its industry in the past year. PDCO has lost 1% compared with the industry’s 10.9% fall in the past year.
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CVS Health (CVS) Pharmacy Claims Volume Grows, Margin Woes Stay
CVS Health Corporation (CVS - Free Report) has been registering solid performances across all three operating segments. High pharmacy claims volume, specialty pharmacy growth and brand inflation have been aiding the Pharmacy Services arm. However, weak margins and stiff competition do not bode well. The stock currently carries a Zacks Rank #3 (Hold).
Over the past year, CVS Health outperformed its industry. The stock has gained 15.1% compared to the 2.3% growth of the industry.
CVS Health’s first-quarter 2022 earnings and revenues beat the Zacks Consensus Estimate. The impressive top-line performance was driven by sales growth across all three operating segments. Within pharmacy services, the company recorded strong revenue growth on increased pharmacy claims volume, growth in specialty pharmacy and brand inflation. The retail/long-term care segment reported revenue growth of 9.2% year over year, largely attributable to increased prescription and front store volume.
CVS Health Corporation Price
CVS Health Corporation price | CVS Health Corporation Quote
At the same time, healthcare benefits revenues rose 12.8% year over year on membership growth across all product lines. The company recorded a medical benefit ratio of 83.5% within the commercial business, indicating continued progression toward normalized total medical costs.
CVS Health administered more than 6 million COVID-19 tests and above 8 million COVID-19 vaccines nationwide in the first quarter. The company’s continued investments in constructing affordable housing units in Denver, Fresno, Nashville and San Antonio to address housing insecurities and enhance access to health care services in underserved communities seem encouraging. The raised EPS guidance for 2022 is indicative that this growth momentum will continue.
On the flip side, in first-quarter 2022, gross margin contracted 69 basis points (bps) to 17.4% on a 12.1% uptick in total cost (including Benefit Cost). Meanwhile, operating costs in the quarter rose 10.7% year over year, resulting in a 2.4% drop in operating profit, with a 63-bp contraction in operating margin to 4.5%. The decline in operating profit can be attributed to the development of a legal settlement accrual related to the pending agreement with the state of Florida to settle all opioid claims against CVS Health. The rise in operating costs and contraction of both margins are building pressure on the company’s bottom line. Further, an ongoing difficult pharmaceutical reimbursement scenario along with escalating drug prices is hurting demand for the company’s offerings.
Further, the reimbursement pressure in the Pharmacy Services segment is projected to be exacerbated by the cumulative effect on rebate guarantees of lower brand name drug price inflation and a modest selling season. On its first-quarter 2022 earnings call, the company noted that within pharmacy, reimbursement pressure continues despite some stabilization in the current year. The company is making continued efforts to combat this reimbursement pressure by increasing volume and reducing costs.
Key Picks
A few better-ranked stocks in the broader medical space that investors can consider are AMN Healthcare Services, Inc. (AMN - Free Report) , Merck & Co., Inc. (MRK - Free Report) and Patterson Companies, Inc. (PDCO - Free Report) .
AMN Healthcare has a long-term earnings growth rate of 1.1%. The company surpassed earnings estimates in the trailing four quarters, delivering a surprise of 15.6%, on average. It currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
AMN Healthcare has outperformed its industry in the past year. AMN has gained 20.1% against the industry’s 33.3% fall.
Merck has a long-term earnings growth rate of 10.1%. The company surpassed earnings estimates in the trailing three quarters and missed in one, delivering a surprise of 13.4%, on average. It currently carries a Zacks Rank #1.
Merck has outperformed its industry in the past year. MRK has gained 21.5% against the industry’s 16.1% growth.
Patterson Companies has an estimated long-term growth rate of 9.6%. The company’s earnings surpassed estimates in all the trailing four quarters, the average beat being 16.5%. It currently has a Zacks Rank #2 (Buy).
Patterson Companies has outperformed its industry in the past year. PDCO has lost 1% compared with the industry’s 10.9% fall in the past year.