Why is CVS Health (CVS) up 1.6% since its last earnings report?

It’s been a month since the last earnings report for CVS Health (CVS). Shares rose about 1.6% in that time, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is CVS Health headed for a recession? Before we dive into the recent reaction from investors and analysts, let’s take a quick look at the company’s most recent earnings report in order to get a better handle on the important factors influencing the situation.

CVS Health’s first-quarter earnings miss estimates, margins up

CVS Health reported adjusted earnings per share (EPS) of $1.31 in the first quarter of 2024, down 40.5% year-over-year. This figure also missed the Zacks Consensus Estimate by 22.5%. Adjusted EPS takes into account certain asset depreciation costs, loss on assets held for sale and other adjustments.

According to reporting data, the company’s GAAP EPS was 88 cents compared to last year’s GAAP EPS of $1.65, a decline of 46.7%.

Revenue

First-quarter revenue increased 3.7% year-over-year to $88.44 billion. However, the top line missed the Zacks Consensus Estimate by 0.9%. The year-over-year growth reflects strong growth in the Health Benefits and Pharma & Consumer Wellness segments.

Quarter in detail

Health services revenue declined 9.7% to $40.29 billion in the reported quarter. The downside was the previously announced loss of a large customer in the first quarter and the continued improvement in prices for pharmacy customers.

The downside was partially offset by its pharmacy drug mix, specialty pharmacy growth and the acquisitions of Oak Street Health and Signify Health.
Total pharmacy claims processed decreased 21.2% on a 30-day basis, driven by the loss of a large number of customers in the first quarter of 2024.

CVS Health’s Pharmacy & Consumer Wellness segment revenue increased 2.9% year over year to $28.73 billion. The increase was primarily driven by the increased volume of prescription drugs, including an increased share of vaccines and the assortment of pharmacy drugs.

In its health benefits segment, the company reported first-quarter revenue of $32.24 billion, up 24.6% year-over-year. Growth was driven by the expansion of the Medicare and Commercial product lines.

Margin

Total costs fell 6.6% to $48.07 billion in the first quarter. Gross profit increased 19.3% to $40.36 billion. Gross margin increased 598 basis points (bps) to 45.6%.

Adjusted operating margin increased 558 basis points to 34% in the quarter despite a 7.4% increase in operating expenses to $10.29 billion.

Liquidity Position

CVS Health ended the first quarter of 2024 with cash and cash equivalents of $9.80 billion, compared to $8.19 billion at the end of the fourth quarter of 2023. Long-term debt was $57.69 billion at the end of the first quarter of 2024 y compared to USD 58.64 billion at the end of the fourth quarter.

The story continues

Cumulative net cash from operations at the end of the first quarter of 2024 was $4.90 billion, compared to $7.44 billion in the same period a year earlier.

Guidelines 2024

Recognizing the likelihood that upward trends in medical costs will continue through the rest of 2024, CVS Health has updated its 2024 EPS guidance.

The company expects full-year 2024 adjusted EPS guidance to be at least $7.00 (down from the previous guidance of at least $8.30). The Zacks Consensus Estimate for 2024 earnings is $8.31.

How have estimates changed since then?

It turns out that new estimates have been trending downward over the past month.

As a result of these changes, the consensus estimate moved by -17.76%.

VGM results

At this point, CVS Health has a great Growth Score of A, although it lags well behind its Momentum Score of D. However, the stock is rated an A on the value side, putting it in the top quintile for this investment strategy.

Overall, the company’s Total VGM Score is A. If you’re not focused on one strategy, this score should interest you.

Perspectives

Estimates for this company are generally on a downward trend, and the magnitude of these revisions indicates a downward shift. It’s no surprise that CVS Health has a Zacks Rank #5 (Strong Sales). We expect a below-average rate of return on stocks in the coming months.

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