CVS Keeps Beating Estimates, Raises Earnings Outlook

  • CVS Health posted its third-quarter results today, beating Wall Street’s estimates.
  • The company maintained its long streak of earnings beats and raised its fiscal 2019 EPS outlook.
  • CVS’s revenue rose for a third consecutive quarter, by more than 36%.

CVS Health (CVS) again beat analysts’ revenue and EPS estimates when it released its third-quarter results today. The company’s revenue rose by more than 36% and beat estimates for a third straight quarter. Its EPS improved YoY (year-over-year) despite reimbursement pressure.

Moreover, management raised its fiscal 2019 adjusted operating income and adjusted EPS outlook, which could support its stock. CVS raised its adjusted EPS guidance to $6.97–$7.05 from $6.89–$7.00. The new outlook is higher than analysts’ expectation of $6.98.

The company’s acquisition of Aetna, higher prescription volumes, and branded drug inflation drove its top line, and its strong sales and operating income drove its bottom line.

With the earnings release, CEO Larry Merlo said, “Our third quarter results build on the positive momentum we have seen across the company since the beginning of the year.” CVS stock was up about 3% in premarket trading today.

CVS Health’s Q3 earnings in detail

In the third quarter, the company’s total revenue rose 36.5% YoY to $64.81 billion, beating Wall Street’s average estimate of $62.99 billion. Its growth catalysts didn’t change, as expected, and the Aetna acquisition continued to drive its top line. CVS Health’s revenue also gained from branded drug inflation and higher prescription volumes. However, higher generic dispensing rates, continued price compression in Pharmacy Services, and reimbursements remained a drag.

In the third quarter, CVS’s adjusted operating income rose 48.9% YoY to $3.95 billion, boosted by the Aetna acquisition, better purchasing economics in the Pharmacy Services segment, and higher volumes. The company’s adjusted EPS rose 6% YoY to $1.84, coming well ahead of analysts’ estimate of $1.77. Its bottom-line growth is impressive, especially given its reimbursement pressure on margins. A higher outstanding share count and interest expenses continued to hurt CVS Health’s bottom-line growth.

Walgreens looking to go private

While CVS Health has continued to deliver impressive financials, rival Walgreens Boots Alliance (WBA) is planning to go private. Walgreens ended fiscal 2019 on a healthy note, beating analysts’ estimates in the fourth quarter. However, its fiscal 2020 earnings outlook suggests continued pressure on its bottom line. Walgreens expects its fiscal 2020 EPS to be flat on a constant-currency basis.

As pressure mounts on WBA, Reuters broke the news that the company is looking at going private. To learn more, read Why Walgreens Is Mulling Over Going Private.