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Key Factors Likely to Shape CVS Health's (CVS) Q4 Earnings

Zacks Equity Research

CVS Health Corporation CVS is scheduled to report fourth-quarter and 2018 results on Feb 20, before the opening bell. In the last reported quarter, the company delivered a positive surprise of 1.17%, the average trailing four-quarter beat being 3.55%.

Let’s take a look at how things are shaping up prior to this announcement.

Factors at Play

CVS Health has so far progressed well with its 2019 PBM selling season. Per the last reported quarterly numbers, client retention rate was higher than the year-ago quarterly rates and the company completed more than 90% of its 2019 renewals. This momentum is expected to be seen in the to-be-reported quarter as well.

Despite a tough pricing competition, CVS Health is currently gaining on high level of service and execution, a competitive pricing and a unique integrated model.

CVS Health Corporation Price and EPS Surprise

CVS Health Corporation Price and EPS Surprise | CVS Health Corporation Quote

The company is also upbeat about sustaining a solid year-over-year revenue trend during the fourth quarter of 2018, thereby realizing gains from the Pharmacy Services segment. Such a performance can be attributed to higher specialty pharmacy and pharmacy network claim volumes as well as brand inflation.

Management stated that CVS Health’s specialty business is its top priority to help it expand its customer base. The company is poised to capitalize on this opportunity on the back of wide and differentiated offerings including Specialty Connect.

Further, the company expects drug price inflation, product launches and higher utilization to fuel growth. We expect the Pharmacy Services segment to be a stable growth platform.

Within the PBM Segment, the company projects revenues to grow in high single digits during the fourth quarter.

The Zacks Consensus Estimate for the Pharmacy Services segment revenues is pegged at $34.88 billion, reflecting a 1.9% increase on a year-over-year basis.

Within the Retail/Long-Term Care Segment, CVS Health is likely to progress on comp script growth from a continued adoption of Patient Care Programs, successful partnering with PBMs and health plans across the industry including preferred position in a number of Med D networks this year. However, the company is worried about the challenges in the Long-Term Care business, which are anticipated to weigh more heavily on its second-half Retail/Long-Term Care growth expectations.  

For the fourth quarter, CVS Health estimates the company’s Retail/Long-Term Care revenues to be down by mid-teens.

The Zacks Consensus Estimate for the Retail/Long-Term Care segment revenues is pegged at $21.8 billion, representing a 4.3% improvement on a year-over-year basis.

Overall, downsides such as persistent reimbursement pressure, rising generic dispensing rate and recent generic drug introductions have been affecting the business.

Here is What Our Quantitative Model Predicts:

Our proven Zacks model shows that a company with a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has maximum chances of beating estimates if it also has a positive Earnings ESP.

CVS Health has a Zacks Rank #3, which increases the predictive power of ESP. It also has an Earnings ESP of +3.29%, together which a likely earnings surprise can be predicted for the stock this season.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Meanwhile, the Zacks Consensus Estimate for fourth-quarter adjusted EPS of $2.07 indicates a 7.8% rise year over year.

Other Stocks to Consider

Following are a few other medical stocks worth considering with the right combination of elements to also beat on earnings in the upcoming quarterly results:

BioDelivery Sciences International, Inc. BDSI has an Earnings ESP of +38.46% and a Zacks Rank of 1. You can see the complete list of today's Zacks #1 Rank stocks here.

MacroGenics, Inc. MGNX has an Earnings ESP of +5.44% and a Zacks Rank #2.

TG Therapeutics, Inc. TGTX has an Earnings ESP of +0.55% and is a Zacks #1 Ranked player.

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