CVS Delivers A Beat In Its Q4 Earnings

by Trefis Team
CVS Health
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CVS Health (NYSE:CVS), the second largest drugstore chain in the U.S., has posted stronger than expected results in its fourth quarter 2018.  The company posted a 12.5% increase in sales to $54.4 billion with adjusted earnings reported at $2.14 per share in Q4. This growth was primarily driven by higher prescription volumes within the retail pharmacy business.  The top line got a major boost by a strong Pharmacy Services segment, benefiting from the upside in the specialty services. CVS successfully completed their long awaited transformational merger of $70 Bn with Aetna, began effective implementation of their integration strategy, and took important steps toward building the integrated healthcare model that will bring substantial value to its stakeholders.

Looking ahead, the company expects its GAAP diluted EPS from continuing operations to grow in the range of $4.88 to $5.08 for the full year 2019. 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. The recent Aetna transaction will also 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 on Takeaways From CVS’s Q4 2018 Earnings. In addition, here is more Health Care data.

Segment-Wise Performance – Revenue for its Pharmacy Services segment grew by 2.2%  in Q4 driven by growth in pharmacy network and specialty claim volume as well as brand inflation, partially offset by continued price compression. This segment includes the pharmacy benefits manager business and specialty pharmacy services.

In its Retail/LTC segment, revenues increased by 5.4% billion driven by an increase in same store prescription volume of 8.6%, on a 30-day equivalent basis, due to continued adoption of the Patient Care Programs, partnerships with PBM’s and health plans, and inclusion in a number of additional Medicare Part D networks this year, as well as brand inflation.

The recent acquisition of Aetna gives A Major Boost to CVS’s  Business- Completed in November, the $70 billion acquisition of Aetna by CVS is likely to provide a major boost to CVS’s business. CVS and Aetna last month received conditional approval from the Department of Justice on their merger. 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.

Outlook for full fiscal 2019

We anticipate CVS to continue this healthy growth momentum in 2019 and beyond, with a rise in the top line continuing over time. 2019 is also expected to be a year of transition for CVS as they integrate with Aetna and focus on key pillars of their growth strategy.


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