CVS Health (CVS) Down 24.2% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for CVS Health (NYSE:CVS). Shares have lost about 24.2% in that time frame, outperforming 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 the most recent earnings report in order to get a better handle on the important drivers.

CVS Health Q4 Earnings Top Estimates, Margins Improve

CVS Health Corporation’s fourth-quarter 2019 adjusted earnings per share of $1.73 dropped 19.2% year over year but exceeded the Zacks Consensus Estimate by 2.9%. The quarter’s adjusted earnings considered certain transaction and integration costs pertaining to the buyout of Aetna (NYSE:AET) and asset amortization costs along with other adjustments.

On a reported basis, the company’s earnings of $1.33 per share came in against the year-ago loss of 37 cents.

Full-year adjusted earnings of $7.08 was unchanged from the year-ago period but topped the Zacks Consensus Estimate by 0.7%.

Total revenues in the fourth quarter rose 22.9% year over year (excluding the impact of certain items that neither relate to the ordinary course of CVS Health’s business nor reflect the company’s underlying business performance, adjusted revenues increased 23.1% year over year) to $66.89 billion. The top line also beat the Zacks Consensus Estimate by 4.2%.

The year-over-year revenue rise was primarily driven by the acquisition of Aetna, expanded volume and the brand name drug price inflation in both the Pharmacy Services and Retail/LTC segments, partially offset by a persistent reimbursement pressure in the Retail/LTC, continued price compression in the Pharmacy Services segment and an increased generic dispensing rate.

Full-year total revenues and adjusted revenues surged 32% and 32.3%, respectively, to reach $256.7 billion. This too exceeded the Zacks Consensus Estimate by 1.1%.

Quarter in Detail

Earlier in 2019, CVS Health realigned the composition of its segments. As a result, the company’s SilverScript Medicare Part D prescription drug plan (PDP) was shifted from the Pharmacy Services segment to Health Care Benefits. In addition, the mail order and specialty pharmacy operations of Aetna were transitioned from the Health Care Benefits segment to Pharmacy Services.

Pharmacy Services revenues were up 6.2% to $37.07 billion in the reported quarter, driven by growth in total pharmacy claims volume and the brand name drug price inflation. This was, however, partially offset by a continued price compression and an increase in generic dispensing rate.

Total pharmacy claims processed rose 10.2% 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 up 2.5% year over year to $22.58 billion. Per the company, the result was based on higher prescription volume and branded drug price inflation, partially offset by a persistent reimbursement pressure and the impact of an increased generic dispensing rate. Front store revenues represented 22.7% of total Retail/LTC revenues in the reported quarter, primarily banking on improved sales of health and beauty products.

Total prescription volume grew 5.6% on a 30-day equivalent basis, boosted by the steady uptake of patient care programs, collaborations with PBMs and the company’s preferred status in a number of Medicare Part D networks.

Within Health Care Benefits segment, the company registered revenues worth $17.15 billion in the fourth quarter.

Gross profit soared 79.1% to $24.82 billion. Accordingly, gross margin expanded 1165 bps to 37.1%. Adjusted operating margin in the quarter under review grew 1086 bps to 24.2% on a 123.1% rise in operating profit to $16.17 billion.

Outlook

CVS Health has provided its 2020 guidance.

Adjusted EPS is expected in the band of $7.04-$7.17. The Zacks Consensus Estimate for 2020 earnings is pegged at $7.15.

This apart, the company’s 2020 adjusted operating profit is estimated in the $15.5-$15.8 billion range.

Further, the company’s full-year cash flow from operations is envisioned in the bracket of $10.5-$11 billion.

How Have Estimates Been Moving Since Then?

It turns out, estimates review flatlined during the past month.

VGM Scores

At this time, CVS Health has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

CVS Health has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.