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Can Pharmacy Services Growth Aid CVS Health (CVS) Q4 Earnings?

Zacks Equity Research

CVS Health Corporation CVS is scheduled to report fourth-quarter 2019 results on Feb 12, before the opening bell.

In the last reported quarter, the company delivered a positive surprise of 3.95%, repeating its beat streak from the remaining three of the trailing four quarters, the average being 6.63%.

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

Factors at Play

Within Pharmacy Services, despite a tough pricing competition, CVS Health has been gaining on strong net new business, particularly in specialty segment and from the continued adoption of Maintenance Choice offerings. Within PBM, the company’s new guaranteed net cost pricing model is garnering interest from clients and benefit consultants, which is likely to have led to strong client wins in the fourth quarter. Further, increased claims volume, the shift of Aetna Mail order and specialty operations into Pharmacy Services segment and improved purchasing economics are also expected to have added to the company’s top line in the fourth quarter.

With respect to the newly-incorporated Health Care Benefits segment, the company earlier expected to see government programs gaining momentum, driven by industry-leading Medicare growth and the key Medicaid wins through the fourth quarter. Hopefully, this might get reflected in the to-be-reported results.

CVS Health Corporation Price and EPS Surprise

CVS Health Corporation Price and EPS Surprise

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

Notably, the Health Care Benefits business already started to register top-line contributions for the company. In the third quarter of 2019, this segment had posted significant Medicare Advantage membership growth, particularly in the government space. SilverScript Medicare Part D business is showing a strong revenue performance as well. These trends most likely continued in the fourth quarter as well. However, per the company’s earlier projection, the quarter to be reported is also expected to have incurred higher sequential spending on CVS Health’s transformation programs.

Within the Retail/Long-Term Care Segment, CVS Health is likely to have thrived in the fourth quarter on the back of higher prescription volumes and consistently solid adjusted script growth owing to the steady success of the pharmacy clinical care program that improved patient retention. Additionally, CVS Health earlier predicted an uptick in the recently-formed Medicare partnerships and the new regional preferred alliances forged in the ongoing year. The continued uptake of the company’s Patient Care Programs in collaboration with PBM and its preferred status in a number of Medicare Part D networks are expected to have aided the fourth-quarter top line.

However, persistent reimbursement pressure might have acted as a deterrent to fourth-quarter Retail/Long-Term Care growth.

Meanwhile, the Zacks Consensus Estimate for fourth-quarter adjusted EPS of $1.68 suggests a 21.5% fall from the year-ago reported figure. The consensus estimate for revenues is currently pegged at $64.21 billion, indicating 17.9% growth from the year-earlier reported number.

What the Quantitative Model Predicts

Per our proven model, a stock needs to have a positive Earnings ESPand a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for delivering a positive earnings surprise. But this is not the case here as you will see below.

Earnings ESP:  CVS Health has an Earnings ESP of 0.00%. 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.

Stocks Worth a Look

Here are a few medical stocks worth considering from the same space with the right mix of elements to surpass expectations this earnings season.

DexCom, Inc. DXCM has a Zacks Rank #2 and an Earnings ESP of +12.27%.

Tandem Diabetes Care, Inc. TNDM has a Zacks Rank of of 2 and an Earnings ESP of +27.59%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Nevro Corp. NVRO has a Zacks Rank of 3 and an Earnings ESP of +10.42%.

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