Despite recent customer losses that forced CVS Health (CVS) to slightly reduce its preliminary 2024 earnings outlook, the company remains well positioned to generate significant additional cash flows going forward.
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CVS Health (CVS) reported its third quarter results this morning. Specifically, revenue for the period increased 10.6% from the prior year to $89.76 billion and beat the consensus estimate of $88.29 billion by $1.48 billion. dollars, as the company continues to enjoy solid growth across all its segments. This was led by its healthcare benefits segment, where strong demand for all of its products led to a 16.9% increase in revenue to $26.30 billion. CVS’ Health Services and Pharmacy & Consumer Wellness segments also continued to perform well, with revenue in the former increasing 8.4% to $46.89 billion on favorable pharmaceutical drug mix. , growth in its specialty pharmacy business, brand inflation and contributions from its recent Oak Street acquisitions. Health and Signify Health, with the latter benefiting from a 6.0% increase in revenue to $28.87 billion driven by higher prescription volumes, favorable pharmaceutical drug mix and brand inflation.
Higher revenues and better purchasing economics in healthcare helped limit pressure on margins from lower pharmaceutical reimbursements and anticipated declines in COVID vaccinations and diagnostic testing -19 in the Pharmacy and Consumer Wellness sector, as well as increased utilization of outpatient care in Medicare Advantage compared to with pandemic-reduced utilization levels over the prior year. This is why, even with the increase in interest expense resulting from the increase in the debt balance following the acquisitions and a higher effective tax rate which weighed on it, the adjusted profit when even rose 1.8% to $2.21 per share, which was better than the 1.8% drop to $2.13. Analysts also forecast.
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This strong operating performance also keeps CVS on track to meet its 2023 adjusted earnings target of $8.50 to $8.70 per share, which it reiterated. Although the midpoint implies the company will only earn $1.98 per share in the fourth quarter, compared to $2.05 the Street is looking for, that still suggests bottom-line growth of up to 5% to close out the year. . Likewise, although its expectations that the current level of high utilization of its Medicare Advantage business and Centene’s previously disclosed loss of business will continue
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I believe these are the reasons why, after initially falling 6.6% at the start of the day, CVS stock has steadily rebounded and recovered almost all of that loss. Still, given that they remain cheap relative to the even slightly more subdued outlook for the year ahead, I think they will continue to rally.
Julius Juenemann, CFA is an equity analyst and associate editor of Forbes Special Situations Survey And Forbes Investor investment newsletters. CVS Health (CVS) is a current recommendation in the Forbes Investor. To access this stock and other recommended stocks via the Forbes InvestorClick here to subscribe.