CVS Health Corporation (CVS)

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Can All-Line Growth Boost CVS Health's (CVS) Q3 Earnings?
By: Hedgopia | November 1, 2019

CVS Health Corporation (CVS) is scheduled to report third-quarter 2019 results on Nov 6, before the opening bell. In the last reported quarter, the company delivered a positive surprise of 11.18%, the average trailing four-quarter beat being 5.93%.

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 high level of service and execution, competitive pricing and a unique integrated model. Regarding 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 third quarter. This, in turn, might have a bearing on the company’s third-quarter results.

CVS Health Corporation Price and EPS Surprise


In terms of the company’s ongoing store expansion strategy, CVS Health has already started to register strong results in the initial hub locations including increased customer traffic and incremental sales in pharmacy front store and Minute Clinics. This too is likely to have contributed to the company’s third-quarter top line.

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 third quarter. Hopefully, this might get reflected in the to-be-reported results.

This Health Care Benefits business has already started to register top-line contributions for the company. In the second quarter, 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. This trend has most likely continued in the third quarter.

However, this segment might take a hit in anticipation that certain one-time benefits realized by Aetna in 2018 are not likely to recur in 2019. This too might have affected the segmental performance in the September quarter.

Within the Retail/Long-Term Care Segment, CVS Health is likely to have thrived in the third 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 projected 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 third-quarter top line.

Meanwhile, the Zacks Consensus Estimate for third-quarter adjusted EPS of $1.77 suggests a 2.31% rise from the year-ago reported figure. The consensus estimate for revenues is currently pegged at $63.03 billion, indicating 33.3% growth from the year-earlier reported number.

Here is What the Quantitative Model Predicts:

Per our proven model, a stock needs to have a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to deliver a positive earnings surprise. This is exactly the case here as you will see below.

Earnings ESP: CVS Health has an Earnings ESP of +0.05%. 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.

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