What Will We See From CVS Health Stock Post Q3 Results?

CVS Health (NYSE: CVS) is scheduled to report its Q3 2021 results on Wednesday, Nov 3. We expect the company to likely post revenue and earnings marginally above the street expectations, driven by a recovery in its pharmacy management business. With the spread of the delta variant, the company likely saw some uptick in Covid-19 testing demand, as well. However, a slowdown in overall Covid-19 vaccination rate likely resulted in a decline in revenue contribution from Covid-19 vaccine administration. Also, a rebound in total procedure volume will likely result in higher benefit costs, weighing on the overall earnings growth, in our view. For perspective, benefit costs as a percentage of premiums stood at 83.3% in the first half of 2021, compared to 75.6% in the prior year period. Furthermore, our forecast indicates that CVS’ valuation is $96 per share, which is only 6% above the current market price of around $91, implying CVS stock has only a little room for growth. Our interactive dashboard analysis on CVS Health’s Pre-Earnings has additional details.

(1) Revenues expected to be marginally above the consensus estimates

Trefis estimates CVS Health’s Q3 2021 net revenues to be around $70.6 billion, slightly above the $70.5 billion consensus estimate. Revenue growth is expected to be led by the Covid-19 vaccination, which CVS is administering in over 8,000 locations. However, given the rise in overall vaccination rate, the demand for testing has come down. As such, CVS’ revenues from administering the Covid-19 testing is expected to see a sequential decline. On the Aetna side, the company will likely continue to add new Medicaid members. Also, given an increase in hospital visits, the company’s pharmacy business is likely to see steady growth in Q3.  Our dashboard on CVS Health’s Revenues offers more details on the company’s segments.

2) EPS also likely to be just above the consensus estimates

CVS Health’s Q3 2021 adjusted earnings per share (EPS) is expected to be $1.81 per Trefis analysis, compared to the consensus estimate of $1.78. CVS Health’s adjusted net income of $3.2 billion in Q2 2021 reflected a 7.6% drop from its $3.5 billion figure in the prior-year quarter. This can be attributed to contraction of margins, partly due to higher benefit costs. However, for the full-year 2021, we expect the adjusted EPS to be higher at $7.75, compared to $7.50 seen in 2020.

(3) Stock price estimate just above the current market price

Going by our CVS Health’s Valuation with an EPS estimate of $7.75 and a P/E multiple of 12x in 2021, this translates into a price of $96, which is 6% above the current market price of around $91. While the 12x figure compares with levels of 9x – 10x seen over the recent years, we believe the P/E multiple will likely increase with margin expansion and better earnings growth over the coming years, partly driven by an overall rebound in economic growth, as the Covid-19 crisis winds down.

Note: P/E Multiples are based on Share Price at the end of the year and reported (or expected) Adjusted Earnings for the full year.