4 Things to Expect in CVS Health's Q1 Earnings Results
CVS Health (NYSE: CVS) reported great 2017 Q4 results in February, thanks in part to a nice benefit from U.S. corporate tax reform. However, the pharmacy stock hasn't performed well so far in 2018 due to investors' skepticism about CVS Health's plans to acquire Aetna (NYSE: AET).
The company has an opportunity to get more investors on its side on Wednesday, May 2, when it announces its first-quarter results. Here are four things to expect in CVS Health's first-quarter update.
Image source: Getty Images.
1. Flu season boost
CVS Health's fourth quarter was helped by an especially nasty flu season. Look for another boost from the rough flu season when the company reports its first-quarter results.
Larry Merlo, CVS Health's CEO, stated in February that the company continued to see the results from higher numbers of flu cases in the first several weeks of 2018. This should increase script utilization in CVS Health's retail/long-term care (LTC) segment in the first quarter. In addition, the traffic generated from an increased number of flu patients should provide a bump to the company's front-store sales.
2. A gift from Uncle Sam
Passage of U.S. corporate tax reform gave CVS Health a big one-time benefit of $1.5 billion. While the company won't see that kind of benefit in the first quarter, CVS Health will still feel the positive effects of lower taxes.
CVS Health expects an increase in consolidated operating profit this year of around $1.2 billion due to its U.S. tax rate falling from 35% to 21%. CFO Dave Denton said in February that the company will enjoy a slightly lower tax rate in the first quarter than it will in the rest of 2018.
3. Impact from generic drug launches
Launches of new generic drugs both hurt CVS Health and helped it. The downside comes on the top line. Generic drugs are cheaper than brand drugs, so sales for CVS Health's retail pharmacy and pharmacy benefits management (PBM) businesses are negatively impacted by greater use of generic drugs. On the other hand, selling generic drugs tends to be more profitable for the company, so CVS Health's operating margins are improved as a result of higher generic dispensing rates.
Look for continued impact -- both positive and negative -- from generic drug launches when CVS Health reports its first-quarter results on Wednesday. The generic drug launches from the second half of 2017 will still affect the company in the first quarter of 2018. In addition, several new generic drugs received FDA approval in Q1, including generics for secondary hyperparathyroidism drug Sensipar and HIV and hepatitis B drug Viread.
4. Medicare Part D growth
One of the positive stories for CVS Health in 2017 was its growing presence in the Medicare Part D prescription drug plan market. The positives should carry over into this year, particularly after CVS Health's Silverscript Medicare Part D plan completed a successful enrollment for the 2018 plan year.
Some of the fruit from Silverscript's enrollment gains should be seen in CVS Health's first-quarter results. However, don't expect the full impact to be felt just yet. Dave Denton noted in the company's fourth-quarter conference call that growth in Medicare Part D should build throughout 2018.
Looking beyond Q1
Overall, investors should look for modest year-over-year revenue growth and strong earnings growth for CVS Health in Q1. However, the company's future prospects depend less on how well it performed in the first quarter and more on what happens with the pending Aetna acquisition.
There are several potential advantages for CVS Health in buying Aetna, including the possibility of offering new products and services. But Wall Street won't be convinced about the merits of the deal until they're real. The bad news for CVS Health's investors is that the negatives associated with an acquisition, especially the suspension of dividend hikes, are already being felt to some degree.
More From The Motley Fool
Keith Speights has no position in any of the stocks mentioned. The Motley Fool recommends CVS Health. The Motley Fool has a disclosure policy.
