A month has gone by since the last earnings report for CVS Health (
CVS Quick Quote CVS - Free Report) . Shares have lost about 2.4% 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 Q3 Earnings Surpass Estimates, Margins Up
CVS Health third-quarter 2023 adjusted earnings per share of $2.21 rose 1.8% year over year and exceeded the Zacks Consensus Estimate by 3.8%. The adjusted EPS figure considers certain asset amortization costs, loss on assets held for sale and other adjustments.
On a reported basis, the company’s GAAP earnings were $1.75 per share, compared with the year-ago GAAP loss of $2.59.
Total revenues in the third quarter rose 10.6% year over year to $89.76 billion. The top line also beat the Zacks Consensus Estimate by 1.8%.
Quarter in Detail
The company recently realigned the composition of its segments. It created the Health Services segment (comprising the company’s pharmacy benefit management operations, health care services and provider enablement solutions) and the Pharmacy & Consumer Wellness segment (comprising enterprise pharmacy fulfillment and retail front store operations).
Health Services revenues were up 8.4% to $46.89 billion in the reported quarter. The upside was primarily driven by pharmacy drug mix, growth in specialty pharmacy, brand inflation and the acquisitions of Oak Street Health and Signify Health, partially offset by continued client price improvements.
Total pharmacy claims processed fell 0.9% on a 30-day equivalent basis, reflecting the impact of a Medicaid customer contract change that occurred during the second quarter of 2023 and a decrease in COVID-19 vaccinations. The decline was largely offset by net new business.
Revenues from CVS Health’s Pharmacy & Consumer Wellness segment were up 6% year over year to $28.87 billion. The impressive growth was driven by increased prescription and front store volume, pharmacy drug mix and brand inflation. However, this growth was partially offset by continued pharmacy reimbursement pressure, the impact of recent generic introductions, a decrease in store count and decreased sales of COVID-19 OTC test kits.
Within the Health Care Benefits segment, the company registered revenues worth $26.29 billion in the third quarter, up 16.9% year over year, driven by growth across all product lines.
Total cost (including Benefit Costs) rose 8.6% to $54.68 billion in the third quarter. Gross profit rose 13.9% to $35.08 billion. The gross margin expanded 113 basis points (bps) to 39.1%.
The adjusted operating margin in the quarter under review expanded 197 bps to 28.1% on an 18.9% rise in operating expenses to $25.20 billion.
CVS Health reiterated its adjusted EPS guidance for full-year 2023 to the band of $8.50-$8.70. The Zacks Consensus Estimate for 2023 earnings is pegged at $8.60.
The company has also reiterated its full-year operating cash flow projection in the range of $12.5-$13.5 billion.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
At this time, CVS Health has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top quintile 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.
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.