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CVS Health (CVS) Retail Arm Continues to Grow Amid Rising Costs
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CVS Health’s (CVS - Free Report) increasing specialty pharmacy along with significant growth observed in the retail business are encouraging. Yet, rising reimbursement pressure and a tough competitive landscape do not bode well. The stock carries a Zacks Rank #3 (Hold).
Over the past six months, CVS Health has outperformed its industry. The stock has lost 12.9% compared with 16.9% fall of the industry.
CVS Health’s first-quarter 2023 earnings and revenues beat the Zacks Consensus Estimate. Robust sales growth across all three operating segments drove the top-line results. Within the Health Care Benefits arm, continued growth across the entire range of insured and self-insured medical, pharmacy, dental and behavioral health products and services instills optimism.
During the first-quarter report, CVS Health stated that it continues to place a high priority on digital engagement and that it has surpassed 50 million unique digital customers. With digital sales in the quarter increasing by more than 30% compared with the previous year’s levels, these customers are producing significant results. With 2.4 times greater spending and larger profits than non-digitally involved consumers, engagement levels are high.
In 2022, the company launched a new functionality that gives patients more choices and convenience for filling prescriptions. Patients can expedite urgent prescriptions, have visibility into out-of-pocket costs and track their order status, all before even coming into the pharmacy. Further, the company is launching various new MinuteClinic virtual care services to support women's health that will be available 24/7.
It completed the colossal $10.6-billion acquisition of Oak Street Health, which is a network of value-based primary care centers for adults on Medicare. The acquisition is expected to further advance CVS Health’s care delivery strategy for consumers.
On the flip side, in first-quarter 2023, CVS Health registered a contraction of margins on escalating costs. Total cost (including benefit costs) rose 13.4%. Gross profit dropped 0.1%. The gross margin contracted 175 basis points (bps) to 15.7%. The adjusted operating margin in the quarter under review contracted 85 bps to 4.5% on a 2.7% rise in operating expenses.
The decline in COVID-19 vaccinations and testing sales is a downside. Further, persistent pharmacy reimbursement headwinds also continued to impact business performance in the quarter under review. The reduced adjusted EPS guidance despite an earnings beat is a concern too.
Further, the ongoing pharmacy reimbursement pressure in the Pharmacy Services and Retail/LTC segments and reductions in the traditional offsets to those pressures increases.
Despite significant new client wins in the course of a strong selling season, intense competition and tough industry conditions act as major impediments. Major competitors such as Walgreens, Target and Wal-Mart are expanding their pharmacy businesses. Competition is especially tough in the pharmacy segment, as other retail businesses continue to add pharmacy departments and low-cost pharmacy options become available.
Penumbra’s stock has gained 171.6% in the past year. The Zacks Consensus Estimate for Penumbra’s earnings per share (EPS) has remained constant at $1.56 for 2023 and $2.56 for 2024 in the past 30 days.
PEN’s earnings beat the consensus mark in each of the trailing four quarters, the average surprise being 109.42%. In the last reported quarter, the company registered an earnings surprise of 109.09%.
The Zacks Consensus Estimate for Lantheus’ 2023 EPS has remained constant at $5.60 in the past 30 days. Shares of the company have gained 50.4% in the past year against the industry’s 20.7% decline.
LNTH’s earnings beat estimates in each of the trailing four quarters, the average surprise being 25.77%. In the last reported quarter, the company recorded an earnings surprise of 13.95%.
Estimates for Haemonetics’ EPS have increased from $3.29 to $3.55 for 2023 in the past 30 days. Shares of the company have gained 34.4% in the past year against the industry’s 20.7% decline.
HAE’s earnings beat estimates in each of the trailing four quarters, the average surprise being 12.21%. In the last reported quarter, Haemonetics delivered an earnings surprise of 13.24%.
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CVS Health (CVS) Retail Arm Continues to Grow Amid Rising Costs
CVS Health’s (CVS - Free Report) increasing specialty pharmacy along with significant growth observed in the retail business are encouraging. Yet, rising reimbursement pressure and a tough competitive landscape do not bode well. The stock carries a Zacks Rank #3 (Hold).
Over the past six months, CVS Health has outperformed its industry. The stock has lost 12.9% compared with 16.9% fall of the industry.
CVS Health’s first-quarter 2023 earnings and revenues beat the Zacks Consensus Estimate. Robust sales growth across all three operating segments drove the top-line results. Within the Health Care Benefits arm, continued growth across the entire range of insured and self-insured medical, pharmacy, dental and behavioral health products and services instills optimism.
During the first-quarter report, CVS Health stated that it continues to place a high priority on digital engagement and that it has surpassed 50 million unique digital customers. With digital sales in the quarter increasing by more than 30% compared with the previous year’s levels, these customers are producing significant results. With 2.4 times greater spending and larger profits than non-digitally involved consumers, engagement levels are high.
CVS Health Corporation Price
CVS Health Corporation price | CVS Health Corporation Quote
In 2022, the company launched a new functionality that gives patients more choices and convenience for filling prescriptions. Patients can expedite urgent prescriptions, have visibility into out-of-pocket costs and track their order status, all before even coming into the pharmacy. Further, the company is launching various new MinuteClinic virtual care services to support women's health that will be available 24/7.
It completed the colossal $10.6-billion acquisition of Oak Street Health, which is a network of value-based primary care centers for adults on Medicare. The acquisition is expected to further advance CVS Health’s care delivery strategy for consumers.
On the flip side, in first-quarter 2023, CVS Health registered a contraction of margins on escalating costs. Total cost (including benefit costs) rose 13.4%. Gross profit dropped 0.1%. The gross margin contracted 175 basis points (bps) to 15.7%. The adjusted operating margin in the quarter under review contracted 85 bps to 4.5% on a 2.7% rise in operating expenses.
The decline in COVID-19 vaccinations and testing sales is a downside. Further, persistent pharmacy reimbursement headwinds also continued to impact business performance in the quarter under review. The reduced adjusted EPS guidance despite an earnings beat is a concern too.
Further, the ongoing pharmacy reimbursement pressure in the Pharmacy Services and Retail/LTC segments and reductions in the traditional offsets to those pressures increases.
Despite significant new client wins in the course of a strong selling season, intense competition and tough industry conditions act as major impediments. Major competitors such as Walgreens, Target and Wal-Mart are expanding their pharmacy businesses. Competition is especially tough in the pharmacy segment, as other retail businesses continue to add pharmacy departments and low-cost pharmacy options become available.
Key Picks
Some better-ranked stocks in the overall healthcare sector are Penumbra (PEN - Free Report) , Lantheus (LNTH - Free Report) and Haemonetics (HAE - Free Report) . While Penumbra and Lantheus each sport a Zacks Rank #1 (Strong Buy), Haemonetics carries a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Penumbra’s stock has gained 171.6% in the past year. The Zacks Consensus Estimate for Penumbra’s earnings per share (EPS) has remained constant at $1.56 for 2023 and $2.56 for 2024 in the past 30 days.
PEN’s earnings beat the consensus mark in each of the trailing four quarters, the average surprise being 109.42%. In the last reported quarter, the company registered an earnings surprise of 109.09%.
The Zacks Consensus Estimate for Lantheus’ 2023 EPS has remained constant at $5.60 in the past 30 days. Shares of the company have gained 50.4% in the past year against the industry’s 20.7% decline.
LNTH’s earnings beat estimates in each of the trailing four quarters, the average surprise being 25.77%. In the last reported quarter, the company recorded an earnings surprise of 13.95%.
Estimates for Haemonetics’ EPS have increased from $3.29 to $3.55 for 2023 in the past 30 days. Shares of the company have gained 34.4% in the past year against the industry’s 20.7% decline.
HAE’s earnings beat estimates in each of the trailing four quarters, the average surprise being 12.21%. In the last reported quarter, Haemonetics delivered an earnings surprise of 13.24%.