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Is a Beat in the Cards for CVS Health (CVS) in Q4 Earnings?

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Zacks Equity Research
·5 min read
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CVS Health Corporation CVS is scheduled to report fourth-quarter and full-year 2020 results on Feb 16, before the opening bell.

In the last-reported quarter, the company delivered an earnings surprise of 23.88%. It beat earnings estimates in each of the trailing four quarters, the earnings surprise being 20.21%, on average.

Factors at Play

Over the past few months, through the pandemic,CVS Health’s specialty digital solutions for patients has been growing strongly. The company has been seeing over 40% of all specialty orders being placed digitally. In this period, CVS Health’s consumer centric digital strategy has become even more relevant as people are using technology more while they stay at home. In this period, the company achieved higher levels of engagement across its digital assets. This digital trend, which has accelerated with COVID-19, is expected to have strongly contributed to the company’s fourth-quarter performance as well.

In the second half of 2020, the company launched a digital platform to assist in registration of COVID-19 patients for clinical trials as vaccines and therapeutic treatments. This new service is a natural extension of CVS Health’s clinical and data analytics capabilities. The company is also administering COVID-19 vaccines once they have become available through its community presence in the fourth quarter. These developments are expected to have strong contributions to the company’s fourth-quarter top line.

In terms of COVID-19 testing, per the company’s November update, it conducted more than six million COVID-19 tests, representing about 70% of the testing done in a retail setting nationwide and doubled the number of testing sites across the country to more than 4,000. Return Ready the company’s comprehensive B2B testing product has been helping its clients get back to work or school by offering testing and support services directly to employers and educators.

CVS Health Corporation Price and EPS Surprise

CVS Health Corporation Price and EPS Surprise
CVS Health Corporation Price and EPS Surprise

CVS Health Corporation price-eps-surprise | CVS Health Corporation Quote

Through November and December, the resurgence of new COVID cases might have resulted in more COVID-19 tests by CVS Health, thus contributing to the company’s fourth-quarter top line.

We also note that, in December, the company was selected by the U.S. Department of Health and Human Services (HHS) to pilot the administration of recently-authorized monoclonal antibody therapy bamlanivimab for COVID-19 to eligible patients at home. This too might have partially contributed to the fourth-quarter top line.

Like most of the pharmacy benefits managers (PBM), CVS Health has been bearing the brunt of the pandemic. Given the reduced walk-in-clinical appointments and patient visits, the company, which has a huge PBM client base, is expected to have seen a significant decline in fourth-quarter revenues. Further, continued price compression amid the gloomy economic scenario is expected to have significantly affected the top line in the quarter. Also, lower new therapy starts and higher operating costs might have reduced the company’s PBM profit margins.

However, over the past few months, the company has been experiencing growth in Specialty Pharmacy and brand inflation. The specialty pharmacy capabilities, wherein it is expected to have witnessed continued growth, include Coram infusion professionals and collaborations with hospitals and providers to help transition eligible IV therapy patients to home-based care. This, while freeing up important hospital bed capacity, is likely to have reduced the cost of care in the fourth quarter.

Within healthcare benefits, the company earlier noted that medical cost utilization largely returned to normal levels from mid-2020. This trend is likely to have continued through the fourth quarter. Further, this segment is expected to have gained from significantly lower medical costs.

The Estimate Picture

The Zacks Consensus Estimate for fourth-quarter adjusted earnings of $1.24 suggests a 28.3% decline from the year-ago quarter reported figure. The consensus estimate for revenues is currently pegged at $68.67 billion, indicating 2.7% growth from the year-earlier reported number.

What the Quantitative Model Predicts

Per our proven model, a stock with a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has good chances of beating estimates. This is the case here as you can see:

Earnings ESP: CVS Health has an Earnings ESP of +0.24%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: CVS Health carries a Zacks Rank #3.

Other Stocks Worth a Look

Here are a few other medical stocks worth considering as these also have the right combination of elements to beat on earnings this reporting cycle.

Charles River Laboratories International CRL currently has an Earnings ESP of +8.55% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Option Care Health OPCH has an Earnings ESP of +34.69% and a Zacks Rank of 2, at present.

Vericel Corporation VCEL has an Earnings ESP of +6.02% and a Zacks Rank of 2, at present.

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