CVS Health has navigated through the challenges of rising costs in its insurance branch to surpass Wall Street’s profit expectations. The pharmacy-focused company reported earnings of $1.64 billion, translating to $1.30 per share for the quarter that concluded on December 31, even though it’s a step down from last year’s $2.05 billion, or $1.58 per share.
After adjusting for one-time costs and benefits, the earnings per share stood impressively at $1.19, well ahead of the 89 cents forecasted by analysts from Zacks Investment Research. This encouraging news sparked an over 11% rise in shares before the market opened on Wednesday.
However, despite the strong performance, the profit fell short of last year’s figure, a situation CVS attributes to heightened medical costs in its insurance sector and lower Medicare Advantage star ratings projected for the 2024 payment year.
Situated in Woonsocket, Rhode Island, CVS Health Corp. manages not only one of the largest drugstore chains in the U.S. but also a significant pharmacy benefit management operation that provides prescription coverage for employers, insurers, and other large clients. Moreover, its Aetna division provides insurance to nearly 27 million individuals.
The company has faced hurdles due to pressures from managing Medicaid coverage across several states and the increasing costs from its Medicare Advantage offerings, which are primarily aimed at those aged 65 and older.
On another front, CVS Health is concluding a multi-year strategy that involves shuttering more than 1,100 stores in its retail unit.
During this quarter, CVS achieved a revenue of $97.71 billion, exceeding the $97.06 billion anticipated by Wall Street analysts.
Looking forward, CVS Health projects full-year adjusted earnings to be between $5.75 and $6 per share, compared to the $5.86 per share anticipated by FactSet analysts.
The company is working to overcome a challenging 2024, marked by repeated cuts to its forecast and a significant 43% decline in stock value. In light of these challenges, former CEO Karen Lynch stepped down last October, with David Joyner stepping in as her replacement. Additionally, about a month after that leadership change, CVS brought in four new board members, including the CEO of Glenview Capital Management, a hedge fund that’s been critical of the company’s underperformance.
According to FactSet, Glenview holds approximately 1% of CVS’s outstanding shares. This engagement reflects a concerted effort to steer CVS Health back towards realizing its full potential.
