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CVS Health (CVS) Q1 Earnings Top Estimates, Costs Escalate
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CVS Health Corporation's (CVS - Free Report) first-quarter 2020 adjusted earnings per share (EPS) of $1.91 increased 17.9% year over year and exceeded the Zacks Consensus Estimate by 17.2%. The adjusted EPS figure takes into account certain integration costs pertaining to the buyout of Aetna, asset amortization costs and storerationalization chargesalong with other adjustments.
On a reported basis, the company’s earnings of $1.53 per share improved 40.4% year over year.
Total revenues in the first quarter rose 8.3% year over year to $66.76 billion. The top line also beat the Zacks Consensus Estimate by 5.6%. The year-over-year revenue rise was primarily driven by strong underlying core growth across all segments.
Quarter in Detail
Pharmacy Services revenues were up 4.2% to $34.98 billion in the reported quarter, driven by growth in specialty pharmacy, brand inflation, increased total pharmacy claims volume, greater use of 90-day prescriptions and early refills of maintenance medications as consumers prepared for the COVID-19 pandemic. The increase was, however, partially offset by continued price compression, an increase in generic dispensing rate and client losses within this business.
Total pharmacy claims processed rose 12.4% on a 30-day equivalent basis, attributable to increased claims under CVS Health’s deal with IngenioRx, and greater use of 90-day prescriptions and early refills of maintenance medications.
CVS Health Corporation Price, Consensus and EPS Surprise
Revenues from CVS Health’s Retail/LTC were up 7.7% year over year to $22.75 billion. Per the company, the year-over-year improvement was based on higher prescription volume, increased front store revenuesand branded drug price inflation, partially offset by a persistent reimbursement pressure and the impact of an increased generic dispensing rate. The quarter’s results also benefited from early refills of maintenance medications as well as the impact of the additional day in 2020 due to the leap year. Front store revenues increased 8.5% with an 8% increase in same-store sales.
Prescriptions filled grew 8.2% on a 30-day equivalent basis for the three months ended Mar 31, 2020 compared to the prior-year period, including a 9.8% increase in same-store prescription volume. The growth was primarily driven by the continued adoption of patient care programs, greater use of 90-day prescriptions and early refills of maintenance medications as consumers prepared for COVID-19, and the impact of the additional day in 2020 due to the leap year.
Total prescription volume grew 8.2% on a 30-day equivalent basis with 9.8% rise in same store prescription volume. This wasboosted by the steady uptake of patient care programs, greater use of 90-day prescriptions, early refills of maintenance medication, and the impact of the additional day in 2020 due to the leap year.
Total revenues increased 7.4% for the three months ended Mar 31, 2020 compared with the prior-year quarter, primarily driven by membership growth in the Health Care Benefits segment’s Government products and the favorable impact of the reinstatement of HIF for 2020. These increases were partially offset by the absence of the financial results of Aetna’s standalone Medicare Part D prescription drug plans, which the company retained through 2019, membership declines in the segment’s Commercial insured products, as well as a decline in net investment income due to lower interest rates and capital markets volatility associated with the COVID-19 pandemic.
Within Health Care Benefits segment, the company registered revenues worth $19.19 billion in the first quarter, up 7.4% year over year. The improvement was primarily driven by membership growth in the segment’s government products and the favorable impact of the reinstatement of the health insurance plans for 2020.
Gross profit improved 8.2% to $26.41 billion. However, gross margin contracted 2 bps to 39.6% on 8.3% rise in cost of product sold. Operating margin in the quarter under review grew 82 bps to 5.2% on a 28.6% rise in operating profit to $3.5 billion.
Outlook
CVS Health reiterated its 2020 adjusted EPS and cash flow guidance.
Adjusted EPS is expected in the band of $7.04-$7.17. The Zacks Consensus Estimate for 2020 earnings is pegged at $7.08.
The full-year operating cash flow guidance in the range of $10.5 billion-$11.0 billion remains unchanged as well.
However, the rest of the earlier-provided guidance has been withdrawn due to the significant variability in the impact of COVID-19 on the company’s business.
Our Take
CVS Health ended the first quarter on a promising note with both earnings and revenues surpassing the respective Zacks Consensus Estimate. Within the Retail/LTC and Pharmacy Services segments, the coronavirus pandemic has resulted in greater use of 90-day prescriptions and early refills of maintenance medications. Further, there was improvement in front store volume within the Retail/LTC segment.
Moreover, the year-over-year improvement in the top line was fueled by strong growth in Pharmacy Services segment, which benefited from the upside in specialty services. The company’s recently-introduced Health Care Benefits segment following the Aetna acquisition also holds immense promise.
Zacks Rank and Key Picks
CVS Health currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the broader medical space are Aphria Inc. , Biogen Inc. (BIIB - Free Report) and Eli Lilly and Company (LLY - Free Report) .
Aphria reported third-quarter fiscal 2020 adjusted EPS of 2 cents against the Zacks Consensus Estimate of a loss of 4 cents. Net revenues of $64.4 million outpaced the consensus estimate by 14.6%. The company carries a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Biogen currently carries a Zacks Rank #2. It reported first-quarter 2020 adjusted EPS of $9.14, surpassing the Zacks Consensus Estimate by 18.1%. Revenues of $3.53 billion outpaced the consensus mark by 3.2%.
Eli Lilly delivered first-quarter 2020 EPS of $1.75, outpacing the Zacks Consensus Estimate by 12.9%. Revenues of $145.3 million surpassed the consensus estimate by 6.3%. The company currently sports a Zacks Rank #1.
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CVS Health (CVS) Q1 Earnings Top Estimates, Costs Escalate
CVS Health Corporation's (CVS - Free Report) first-quarter 2020 adjusted earnings per share (EPS) of $1.91 increased 17.9% year over year and exceeded the Zacks Consensus Estimate by 17.2%. The adjusted EPS figure takes into account certain integration costs pertaining to the buyout of Aetna, asset amortization costs and storerationalization chargesalong with other adjustments.
On a reported basis, the company’s earnings of $1.53 per share improved 40.4% year over year.
Total revenues in the first quarter rose 8.3% year over year to $66.76 billion. The top line also beat the Zacks Consensus Estimate by 5.6%. The year-over-year revenue rise was primarily driven by strong underlying core growth across all segments.
Quarter in Detail
Pharmacy Services revenues were up 4.2% to $34.98 billion in the reported quarter, driven by growth in specialty pharmacy, brand inflation, increased total pharmacy claims volume, greater use of 90-day prescriptions and early refills of maintenance medications as consumers prepared for the COVID-19 pandemic. The increase was, however, partially offset by continued price compression, an increase in generic dispensing rate and client losses within this business.
Total pharmacy claims processed rose 12.4% on a 30-day equivalent basis, attributable to increased claims under CVS Health’s deal with IngenioRx, and greater use of 90-day prescriptions and early refills of maintenance medications.
CVS Health Corporation Price, Consensus and EPS Surprise
CVS Health Corporation price-consensus-eps-surprise-chart | CVS Health Corporation Quote
Revenues from CVS Health’s Retail/LTC were up 7.7% year over year to $22.75 billion. Per the company, the year-over-year improvement was based on higher prescription volume, increased front store revenuesand branded drug price inflation, partially offset by a persistent reimbursement pressure and the impact of an increased generic dispensing rate. The quarter’s results also benefited from early refills of maintenance medications as well as the impact of the additional day in 2020 due to the leap year. Front store revenues increased 8.5% with an 8% increase in same-store sales.
Prescriptions filled grew 8.2% on a 30-day equivalent basis for the three months ended Mar 31, 2020 compared to the prior-year period, including a 9.8% increase in same-store prescription volume. The growth was primarily driven by the continued adoption of patient care programs, greater use of 90-day prescriptions and early refills of maintenance medications as consumers prepared for COVID-19, and the impact of the additional day in 2020 due to the leap year.
Total prescription volume grew 8.2% on a 30-day equivalent basis with 9.8% rise in same store prescription volume. This wasboosted by the steady uptake of patient care programs, greater use of 90-day prescriptions, early refills of maintenance medication, and the impact of the additional day in 2020 due to the leap year.
Total revenues increased 7.4% for the three months ended Mar 31, 2020 compared with the prior-year quarter, primarily driven by membership growth in the Health Care Benefits segment’s Government products and the favorable impact of the reinstatement of HIF for 2020. These increases were partially offset by the absence of the financial results of Aetna’s standalone Medicare Part D prescription drug plans, which the company retained through 2019, membership declines in the segment’s Commercial insured products, as well as a decline in net investment income due to lower interest rates and capital markets volatility associated with the COVID-19 pandemic.
Within Health Care Benefits segment, the company registered revenues worth $19.19 billion in the first quarter, up 7.4% year over year. The improvement was primarily driven by membership growth in the segment’s government products and the favorable impact of the reinstatement of the health insurance plans for 2020.
Gross profit improved 8.2% to $26.41 billion. However, gross margin contracted 2 bps to 39.6% on 8.3% rise in cost of product sold. Operating margin in the quarter under review grew 82 bps to 5.2% on a 28.6% rise in operating profit to $3.5 billion.
Outlook
CVS Health reiterated its 2020 adjusted EPS and cash flow guidance.
Adjusted EPS is expected in the band of $7.04-$7.17. The Zacks Consensus Estimate for 2020 earnings is pegged at $7.08.
The full-year operating cash flow guidance in the range of $10.5 billion-$11.0 billion remains unchanged as well.
However, the rest of the earlier-provided guidance has been withdrawn due to the significant variability in the impact of COVID-19 on the company’s business.
Our Take
CVS Health ended the first quarter on a promising note with both earnings and revenues surpassing the respective Zacks Consensus Estimate. Within the Retail/LTC and Pharmacy Services segments, the coronavirus pandemic has resulted in greater use of 90-day prescriptions and early refills of maintenance medications. Further, there was improvement in front store volume within the Retail/LTC segment.
Moreover, the year-over-year improvement in the top line was fueled by strong growth in Pharmacy Services segment, which benefited from the upside in specialty services. The company’s recently-introduced Health Care Benefits segment following the Aetna acquisition also holds immense promise.
Zacks Rank and Key Picks
CVS Health currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the broader medical space are Aphria Inc. , Biogen Inc. (BIIB - Free Report) and Eli Lilly and Company (LLY - Free Report) .
Aphria reported third-quarter fiscal 2020 adjusted EPS of 2 cents against the Zacks Consensus Estimate of a loss of 4 cents. Net revenues of $64.4 million outpaced the consensus estimate by 14.6%. The company carries a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Biogen currently carries a Zacks Rank #2. It reported first-quarter 2020 adjusted EPS of $9.14, surpassing the Zacks Consensus Estimate by 18.1%. Revenues of $3.53 billion outpaced the consensus mark by 3.2%.
Eli Lilly delivered first-quarter 2020 EPS of $1.75, outpacing the Zacks Consensus Estimate by 12.9%. Revenues of $145.3 million surpassed the consensus estimate by 6.3%. The company currently sports a Zacks Rank #1.
Today's Best Stocks from Zacks
Would you like to see the updated picks from our best market-beating strategies? From 2017 through 2019, while the S&P 500 gained and impressive +53.6%, five of our strategies returned +65.8%, +97.1%, +118.0%, +175.7% and even +186.7%.
This outperformance has not just been a recent phenomenon. From 2000 – 2019, while the S&P averaged +6.0% per year, our top strategies averaged up to +54.7% per year.
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