CVS Health (CVS) Q3 Earnings Surpass Estimates, Margins Up
CVS Health Corporation's CVS third-quarter 2023 adjusted earnings per share (EPS) of $2.21 rose 1.8% year over year and exceeded the Zacks Consensus Estimate by 3.8%. The adjusted EPS figure considers certain asset amortization costs, loss on assets held for sale and other adjustments.
On a reported basis, the company’s GAAP earnings were $1.75 per share, compared with the year-ago GAAP loss of $2.59.
Total revenues in the third quarter rose 10.6% year over year to $89.76 billion. The top line also beat the Zacks Consensus Estimate by 1.8%.
Quarter in Detail
The company recently realigned the composition of its segments. It created the Health Services segment (comprising the company’s pharmacy benefit management operations, health care services and provider enablement solutions) and the Pharmacy & Consumer Wellness segment (comprising enterprise pharmacy fulfillment and retail front store operations).
Health Services revenues were up 8.4% to $46.89 billion in the reported quarter. The upside was primarily driven by pharmacy drug mix, growth in specialty pharmacy, brand inflation and the acquisitions of Oak Street Health and Signify Health, partially offset by continued client price improvements. This compares with our model’s projection of $45.20 billion for the third quarter.
Total pharmacy claims processed fell 0.9% on a 30-day equivalent basis, reflecting the impact of a Medicaid customer contract change that occurred during the second quarter of 2023 and a decrease in COVID-19 vaccinations. The decline was largely offset by net new business.
Revenues from CVS Health’s Pharmacy & Consumer Wellness segment were up 6% year over year to $28.87 billion. The impressive growth was driven by increased prescription and front store volume, pharmacy drug mix and brand inflation. However, this growth was partially offset by continued pharmacy reimbursement pressure, the impact of recent generic introductions, a decrease in store count and decreased sales of COVID-19 OTC test kits. This compares with our model’s projection of $29.11 billion for Health’s Pharmacy & Consumer Wellness segment for the third quarter.
CVS Health Corporation Price, Consensus and EPS Surprise
CVS Health Corporation price-consensus-eps-surprise-chart | CVS Health Corporation Quote
Within the Health Care Benefits segment, the company registered revenues worth $26.29 billion in the third quarter, up 16.9% year over year, driven by growth across all product lines. This compares with our model’s projection of $25.57 billion for the Health Care Benefits segment for the third quarter.
Margin
Total cost (including Benefit Costs) rose 8.6% to $54.68 billion in the third quarter. Gross profit rose 13.9% to $35.08 billion. The gross margin expanded 113 basis points (bps) to 39.1%.
The adjusted operating margin in the quarter under review expanded 197 bps to 28.1% on an 18.9% rise in operating expenses to $25.20 billion.
2023 Guidance
CVS Health reiterated its adjusted EPS guidance for full-year 2023 to the band of $8.50-$8.70. The Zacks Consensus Estimate for 2023 earnings is pegged at $8.60.
The company has also reiterated its full-year operating cash flow projection in the range of $12.5-$13.5 billion.
Our Take
CVS Health’s third-quarter 2023 earnings and revenues beat the Zacks Consensus Estimate. Robust sales growth across all three operating segments drove the top-line results. Within the Health Service segment, pharmacy drug mix, growth in specialty pharmacy and brand inflation drove year-over-year growth. During the third quarter, CVS Health launched Cordavis — a wholly-owned subsidiary that will work with pharmaceutical manufacturers to commercialize and/or co-produce biosimilar products for the United States market.
The decline in COVID-19 vaccinations and testing sales is a downside. Further, persistent pharmacy reimbursement headwinds also continued to impact business performance in the quarter under review.
Zacks Rank and Key Picks
CVS Health currently carries a Zacks Rank #4 (Sell).
Some better-ranked stocks in the broader medical space that have announced quarterly results are Abbott Laboratories ABT, Inari Medical NARI and Integer Holdings Corporation ITGR.
Abbott, carrying a Zacks Rank of 2 (Buy), reported third-quarter 2023 adjusted EPS of $1.14, beating the Zacks Consensus Estimate by 3.6%. Revenues of $10.14 billion outpaced the consensus mark by 3.6%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Abbott has a long-term estimated growth rate of 5.1%. ABT’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 6.8%.
Inari Medical, carrying a Zacks Rank #2, reported a second-quarter 2023 adjusted EPS of 4 cents, beating the Zacks Consensus Estimate by a staggering 128.6%. Revenues of $119 million outpaced the consensus estimate by 2.3%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Inari Medical has an estimated earnings growth rate of 725% for the next year. Inari Medical’s earnings surpassed estimates in all the trailing four quarters, the average being 66.8%.
Integer Holdings reported third-quarter 2023 adjusted EPS of $1.27, beating the Zacks Consensus Estimate by 20.9%. Revenues of $404.7 million surpassed the Zacks Consensus Estimate by 8.7%. It currently carries a Zacks Rank #2.
Integer Holdings has a long-term estimated growth rate of 15.8%. ITGR’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 11.9%.
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