What to Expect When CVS Health Corp Reports Earnings
CVS Health Corp (NYSE: CVS) shares have struggled so far in 2018 in the face of what could be a major transformation in the health care market. CVS reports its second-quarter earnings Aug. 8 and analysts say the numbers will likely reflect a healthy balance sheet but a slowing pharmacy business.
Wall Street analysts are calling for CVS to report earnings per share of $1.61 and revenue of $46.34 billion, up 1.4 percent from a year ago. Growth is expected to slow from the 2.6 percent rate CVS reported in the first quarter.
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However, investors will be watching closely to see if CVS can maintain its robust cash flow and income stream, which is has been using to invest in long-term growth initiatives. CVS has said it will put $275 million of its cash back into its business this year. Much of that cash will be spent on the company's planned acquisition of Aetna ( AET), which is expected to close in the second half of the year.
Bank of America analyst Michael Cherny says that once the Aetna deal is complete, CVS will likely pursue an aggressive revamping of its business model, expanding the number of MinuteClinics in its stores and broadening the scope of the services they provide.
"We think it would be advantageous for CVS to both expand its MinuteClinic franchise and purchase physician groups depending on location," Cherny says.
Cherny says this type of restructuring could help set CVS up to compete with Amazon.com ( AMZN) and others as the pharmacy business evolves in the long term. He also says investors shouldn't be concerned about the costs associated with the strategy, estimating a total potential cost of just $2 billion to $3 billion over a period of several years.
Cherny is expecting in-line EPS of $1.61 in the second quarter, but his full-year EPS estimate of $7 is above consensus estimates of $6.88.
CFRA analyst Kevin Huang says CVS is more insulated from Amazon than investors seem to realize, and the company has plenty of time to execute its strategy.
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"We think that CVS's significant size and scale provide a substantial barrier for AMZN to overcome, and the potential for AMZN to disrupt the established industry could take some time," Huang says.
Bank of America has a "buy" rating and $84 price target for CVS. CFRA has a "buy" rating and $79 target for CVS stock.
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