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CVS Health (CVS - Free Report) is a Zacks Rank #5 (Strong Sell) that is a prominent player in the health solutions sector in the United States.
The stock has had a rough couple of years but has held up until recently. A recent earnings surprise miss has taken away a lot of hope from investors and the stock has now fallen near COVID lows.
The earnings miss seen last week was the first since 2015, which is making investors very nervous about what the rest of 2024 may hold.
About the Company
CVS has been in operation since its incorporation in 1996 and is based in Woonsocket, Rhode Island. The company employs 219,000.
CVS caters to various customer groups, including employer groups, individuals, healthcare providers, and governmental units. Its Health Care Benefits segment provides health insurance products and services, while the Health Services segment offers pharmacy benefit management solutions. Additionally, the Pharmacy & Consumer Wellness segment sells prescription and over-the-counter drugs, beauty products, and personal care items, operating through various channels such as online retail pharmacies and specialty stores.
CVS is valued at $70 billion and has a Forward PE of 7. The stock holds Zacks Style Scores of “A” in Growth and Value, and “B” in Momentum. CVS pays a dividend of 4.75%.
Q1 Earnings
Last Wednesday, CVS Health reported an EPS miss of $1.31, falling short of the expected $1.69 per share. Revenue also missed estimates, coming in at $88.4 billion compared to the expected $89.2 billion.
This disappointing performance prompted a downward revision of the company's outlook for fiscal year 2024, with adjusted earnings per share now expected to be "at least" $7.00, down from the previous estimate of $8.31.
Similarly, cash flow from operations for FY24 has been revised downwards to at least $10.5 billion, signaling a significant reduction from the previous projection of $12.0-12.5 billion.
Several factors have contributed to this downward revision, including near-term challenges in the Medicare Advantage segment. The company cited a medical benefits ratio of 90.4% in Q1, a notable increase from 84.6% year-on-year, indicating increased pressure on healthcare spending. Additionally, the Health Care Benefits segment witnessed a decline in operating margin from 7.0% to 2.3% year-on-year, reflecting operational challenges and cost pressures.
Management acknowledged the difficulties faced by the company, attributing some of the challenges to external factors such as the cyberattack on Change Healthcare, which impaired the visibility of medical claims in Q1.
Earnings Estimates
Over the last 7 days, earnings estimates have been slashed by analysts.
For the current quarter, estimates plunged from $2.21 to $1.83, or 17%. For the next quarter, estimates have been lowered by 7%.
For the current year, we see an 11% drop, with estimates falling from $8.29 to $7.35
For next year, the last 7 days have seen a 13% drop, falling from $9.08 to $7.94.
Analysts have also been lowering price targets since earnings. Some more notable names include UBS going from $85 to $60 and Morgan Stanley dropping to $65 from $85.
Technical Take
The COVID lows for CVS were just under $52. The stock is now under 10% away from that spot where it may find support.
Additionally, the dividend is around 5%, which could be attractive to investors If interest rates start coming down.
However, the fundamental issues have been showing themselves on the chart for about a year. The stock is down almost 50% since the start of 2023 and should be considered a falling knife that one should avoid.
Investors should be patient and wait until technical support is confirmed. Some levels to watch are $52, $44, and $39.
The 200-day moving average is way up at $72 and the 21-day is at $66.
In Summary
Investors should exercise caution and closely monitor CVS Health's performance in the coming quarters. With headwinds mounting and growth prospects uncertain, the company faces a pivotal juncture in its journey toward sustaining profitability and enhancing shareholder value.
For those interested in the space, a better option might be Walgreens Boots Alliance (WBA - Free Report) . While the company has seen many of the same issues as CVS, the stock is a Zacks Rank #3 (Hold) that is coming off a 46% EPS beat.
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Bear of the Day: CVS Health (CVS)
CVS Health (CVS - Free Report) is a Zacks Rank #5 (Strong Sell) that is a prominent player in the health solutions sector in the United States.
The stock has had a rough couple of years but has held up until recently. A recent earnings surprise miss has taken away a lot of hope from investors and the stock has now fallen near COVID lows.
The earnings miss seen last week was the first since 2015, which is making investors very nervous about what the rest of 2024 may hold.
About the Company
CVS has been in operation since its incorporation in 1996 and is based in Woonsocket, Rhode Island. The company employs 219,000.
CVS caters to various customer groups, including employer groups, individuals, healthcare providers, and governmental units. Its Health Care Benefits segment provides health insurance products and services, while the Health Services segment offers pharmacy benefit management solutions. Additionally, the Pharmacy & Consumer Wellness segment sells prescription and over-the-counter drugs, beauty products, and personal care items, operating through various channels such as online retail pharmacies and specialty stores.
CVS is valued at $70 billion and has a Forward PE of 7. The stock holds Zacks Style Scores of “A” in Growth and Value, and “B” in Momentum. CVS pays a dividend of 4.75%.
Q1 Earnings
Last Wednesday, CVS Health reported an EPS miss of $1.31, falling short of the expected $1.69 per share. Revenue also missed estimates, coming in at $88.4 billion compared to the expected $89.2 billion.
This disappointing performance prompted a downward revision of the company's outlook for fiscal year 2024, with adjusted earnings per share now expected to be "at least" $7.00, down from the previous estimate of $8.31.
Similarly, cash flow from operations for FY24 has been revised downwards to at least $10.5 billion, signaling a significant reduction from the previous projection of $12.0-12.5 billion.
Several factors have contributed to this downward revision, including near-term challenges in the Medicare Advantage segment. The company cited a medical benefits ratio of 90.4% in Q1, a notable increase from 84.6% year-on-year, indicating increased pressure on healthcare spending. Additionally, the Health Care Benefits segment witnessed a decline in operating margin from 7.0% to 2.3% year-on-year, reflecting operational challenges and cost pressures.
Management acknowledged the difficulties faced by the company, attributing some of the challenges to external factors such as the cyberattack on Change Healthcare, which impaired the visibility of medical claims in Q1.
Earnings Estimates
Over the last 7 days, earnings estimates have been slashed by analysts.
For the current quarter, estimates plunged from $2.21 to $1.83, or 17%. For the next quarter, estimates have been lowered by 7%.
For the current year, we see an 11% drop, with estimates falling from $8.29 to $7.35
For next year, the last 7 days have seen a 13% drop, falling from $9.08 to $7.94.
Analysts have also been lowering price targets since earnings. Some more notable names include UBS going from $85 to $60 and Morgan Stanley dropping to $65 from $85.
Technical Take
The COVID lows for CVS were just under $52. The stock is now under 10% away from that spot where it may find support.
Additionally, the dividend is around 5%, which could be attractive to investors If interest rates start coming down.
However, the fundamental issues have been showing themselves on the chart for about a year. The stock is down almost 50% since the start of 2023 and should be considered a falling knife that one should avoid.
Investors should be patient and wait until technical support is confirmed. Some levels to watch are $52, $44, and $39.
The 200-day moving average is way up at $72 and the 21-day is at $66.
In Summary
Investors should exercise caution and closely monitor CVS Health's performance in the coming quarters. With headwinds mounting and growth prospects uncertain, the company faces a pivotal juncture in its journey toward sustaining profitability and enhancing shareholder value.
For those interested in the space, a better option might be Walgreens Boots Alliance (WBA - Free Report) . While the company has seen many of the same issues as CVS, the stock is a Zacks Rank #3 (Hold) that is coming off a 46% EPS beat.