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CVS Health (CVS) Down 7% Since Last Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for CVS Health (CVS - Free Report) . Shares have lost about 7% 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's PBM Selling Season Remains Solid, Retail Grows

CVS Health’s first-quarter 2019 adjusted earnings per share (EPS) of $1.62 increased 9.5% year over year and also exceeded the Zacks Consensus Estimate by 8%.

The quarter’s adjusted EPS considered certain transaction and integration costs pertaining to the buyout of Aetna and the purchase of Omnicare. It also adjusted certain store rationalization charge related to the planned closure of 46 underperforming retail pharmacy stores during the second quarter of 2019.

On a reported basis, the company registered earnings of $1.09 per share, up 11.2% from the year-ago period.
Net revenues in the first quarter surged 34.8% year over year to $61.65 billion. The same also topped the Zacks Consensus Estimate of $60.47 billion.

Quarter in Detail
     
Effective first-quarter 2019, the company has realigned the composition of its segments. As a result of this move, the company’s SilverScript Medicare Part D prescription drug plan (PDP) has shifted from the Pharmacy Services segment to the Health Care Benefits segment. In addition, the mail order and specialty pharmacy operations of Aetna have been transitioned from the Health Care Benefits segment to the Pharmacy Services segment.

Pharmacy Services revenues inched up 3.1% to $33.56 billion in the reported quarter, driven by growth in total pharmacy claims volume andthe brand name drug price inflation. This was, however, partially offset by a continued client price compressionand an increased generic dispensing rate.

Total pharmacy claims processed increased 2.8% on a 30-day equivalent basis, attributable to net new business and the steady adoption of Maintenance Choice offerings.

Revenues from CVS Health’s Retail/LTC were nudged up by 3.3% year over year to $21.12 billion. Per the company, the result was based on increased prescription volume and branded drug price inflation, partially offset by a persistent reimbursement pressure and the impact of recent generic introductions. Front store revenues rose 22.7% in the reported quarter, primarily banking on improved health product sales.

Total prescription volume grew 5.5% on a 30-day equivalent basis, boostedby the continued uptake of patient care programs and collaborations with PBMs as well as the preferred status in a number of Medicare Part D networks.
Following the closing of CVS Health’s acquisition of Aetna, the company has integrated Aetna’s Health Care segment to its business and renamed it as Health Care Benefits segment. In the reported quarter, the company registered revenues of $17.87 billion within this segment.

Gross profit skyrocketed 196.2% to $24.39 billion. Accordingly, gross margin expanded 2157 bps to 39.6%. Adjusted operating margin in the quarter under review expanded 1893 bps to 26.2%.

Outlook

CVS Health has updated its 2019 guidance.

Adjusted EPS expectation has been raised to the band of $6.75-$6.90 from the earlier-provided range of $6.68-$6.88. The Zacks Consensus Estimate for earnings is pegged at $6.78, within but close to the lower end of the company’s guided range. This apart, its 2019 adjusted operating profit estimate has been narrowed to the $15-$15.2 billion band from the previous view of $14.8-$15.2 billion.

Further, the company anticipates cash flow from operations from $9.8 billion to $10.3 billion (unchanged).


The company has also issued outlook for the second quarter of 2019. Adjusted EPS is projected in the range of $1.68-$1.72. The Zacks Consensus Estimate for earnings of $1.68 meets the lower end of the guided range.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

VGM Scores

Currently, CVS Health has a nice Growth Score of B, a grade with the same score on the momentum front. Charting a somewhat similar path, 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.

Outlook

Estimates have been broadly trending upward 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.


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