What To Expect From CVS Q2 2018

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CVS Health (NYSE:CVS) is scheduled to release its second quarter results on August 8. The company had posted decent growth in its Q1 2018 where it saw a 2.6% increase in sales to $45.7 billion in Q1. This growth was primarily driven by higher prescription volumes within the retail pharmacy business and a lower effective income tax rate. During the first quarter, CVS continued to innovate in the healthcare market. They introduced “Real-time Benefits,” a process to share plan design in real-time, at the point of prescribing, with the physician. They also launched an initiative, “Rx Savings Finder,” to combat rising drug prices. This initiative provides improved visibility into drug costs at the pharmacy counter. These initiatives have benefited consumers by improving transparency and lowering costs. The company’s adjusted earnings were reported at $1.48 per share in Q1, reflecting an additional adjustment for net interest expense from the proposed Aetna acquisition.

Looking ahead, the company forecasts more cautious full year 2018 adjusted operating profit growth in the range of between 0.25% to 2.75% and growth of 5.25% to 8.5% in Q2. CVS is focused on long-term growth initiatives, and to invest in process improvements and technology enhancements that will position them well to expand their reach in providing access to high-quality, and more affordable care. Also, the Aetna transaction will provide CVS the means to further lower health care costs for consumers and payers, in turn benefiting the company in the longer run.  Please refer to our dashboard analysis Outlook For CVS’s  Q2 2018 results.

The factors below will likely play a key role in CVS’s Q2 results.

Retail/LTC segment – In its Retail/LTC segment, the company had moderate revenue growth of 5.6% y-o-y in the previous quarter.  In the upcoming Q2, growth for this segment will follow an upward trend driven by solid same store script growth as a result of partnerships established with PBMs and health plans. Increased participation as a pharmacy in Medicare Part D networks will also boost results.

Pharmacy Services segment – In its Pharmacy Services segment, CVS grew 3.2% y-o-y in the previous quarter. Certain factors that have aided growth in this segment and are likely to favor it include network claims, brand inflation, and growth in specialty pharmacy. This segment includes the pharmacy benefits manager business and specialty pharmacy services.

CVS’s Business Will strengthen From the upcoming Acquisition of Aetna – Announced in December 2017, the acquisition of Aetna by CVS will likely provide a major boost to CVS’s business in 2018 second half and beyond. The combination is expected to provide consumers with a more integrated experience, reduced costs, and improved access to health care experts in homes. This will combine CVS’s dense local presence, through pharmacies and clinics, with Aetna’s health care benefits and services.

CVS’s PBM business will get a shot in the arm due to greater negotiating power with the drug companies. The company will also be able to tap into Aetna’s 45 million user base and provide them with its offerings which include pharmacy benefit management – the negotiation of  drug prices on the behalf of insurance companies – MinuteClinics, home infusion services, and long-term care pharmacies.

All in all, we anticipate CVS to continue its healthy growth momentum in the coming earnings and beyond with a rise in the top line.

 

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