CVS Health Faces Challenges as Second-Quarter Earnings Approach


Wall Street is bracing for disappointing news as CVS Health prepares to report its second-quarter earnings on Wednesday morning. The major health insurance provider, which also owns a retail pharmacy chain and a pharmacy benefit manager, has experienced a 21% decline in its share price this year, while the S&P 500 has seen a 19% climb.

In a move to cut down on spending and combat mounting pressures, CVS announced plans to eliminate approximately 5,000 jobs, primarily in corporate roles. This decision caused shares of CVS to fall by 1.4% on Tuesday.

CVS (ticker: CVS) has faced a series of concerning developments in recent months. Firstly, competitor UnitedHealth Group’s (UNH) CFO revealed in June that utilization rates in the company’s Medicare Advantage business were particularly high. Medicare Advantage offers private plans through the government-sponsored Medicare program. The market responded with a selloff in the health insurance sector due to concerns about declining profits. Although UnitedHealth managed the higher utilization effectively, investors are eager to see how CVS will fare.

Additionally, rival retail pharmacy company Walgreens Boots Alliance (WBA) reduced its full-year guidance in June, citing a decline in profit margins.

Potential Challenges for CVS

UBS analyst Kevin Caliendo raised concerns about CVS’s performance in the upcoming quarter. In a note written on August 1, he highlighted the potential negative impacts that several factors could have on the company’s outlook for 2023 and 2024.

Analyst Expectations

According to FactSet, Wall Street analysts are predicting that CVS will report sales of $86.4 billion and earnings of $2.12 per share. One crucial metric they will be closely monitoring is the medical loss ratio, which stands at 84.4%. This ratio reflects the proportion of premiums paid out to cover medical expenses.

Earnings Guidance Adjustment

CVS had previously provided a full-year earnings guidance range of $8.70 to $8.90 per share. However, in May, the company revised its estimates lower, projecting adjusted earnings between $8.50 and $8.70 per share.

Expansion into Primary Care

In May, CVS completed its $10.6 billion acquisition of Oak Street Health, a primary care provider. This move is part of CVS’s strategy to venture into primary care services. Nevertheless, Oak Street Health faced challenges in 2022, recording a loss of $509.7 million despite generating $2.2 billion in revenues.

Medicare Advantage Plan Quality Ratings

Investors will be particularly interested in any updates from CVS regarding the quality ratings of its Medicare Advantage plans. These plans encountered significant setbacks in late 2022. However, the new ratings won’t be available until the fall.

Investor Call

On Wednesday, CVS will be hosting a call for investors at 8 a.m., during which they can gain further insights and address any queries they might have.

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