Higher Costs To Weigh On CVS Health’s Q2?

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CVS Health

CVS Health (NYSE: CVS) will report its Q2 2023 results on Wednesday, Aug 2. We expect the company’s revenues to come in at $86.0 billion, slightly below the consensus estimate of $86.5 billion. This would mark year-over-year growth of about 7%. Earnings will likely come in at about $2.10 on a per-share and adjusted basis, nearly matching the $2.11 consensus estimate. See our interactive dashboard analysis on CVS Health Earnings Preview for more details on how the company’s revenues and earnings will likely result for the quarter. So, what are some of the trends that are likely to drive CVS Health’s results?

The company will likely continue to benefit from the steady growth of its healthcare and pharmacy services businesses. The increased prescription volume and drug price inflation will likely drive the top-line expansion. However, higher costs, primarily benefits costs, probably weighed on its overall performance. Looking at Q1 2023, CVS Health’s revenues were up 11%, led by about a 12% rise in Health Care Benefits and Health Services segments and an 8% growth in the Pharmacy & Consumer Wellness segment.

Looking at the bottom line, CVS Health reported $2.20 earnings per share on an adjusted basis in Q1, compared to a $2.30 figure in the prior-year quarter. This can be attributed to a 57 bps decline in the company’s operating margin of 4.0% due to the write-down of the Company’s Omnicare long-term care business and an overall increase in costs, mainly for the Pharmacy & Consumer Health segment. Our CVS Health’s Operating Income Comparison dashboard has more details.

Looking at CVS’ stock price, we believe that it is undervalued. We estimate CVS Health’s valuation to be $103 per share, about 38% above its current price of $75. At its current levels, CVS is trading at less than 9x its forward expected earnings of $8.58 on a per-share and adjusted basis for the full-year 2023, compared to its last two-year average of over 11x, implying that CVS is undervalued. The company has guided for adjusted EPS to be in the range of $8.50 to $8.70 for the full-year 2023.

While CVS stock looks undervalued, it is helpful to see how CVS Health’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

Returns Jul 2023
MTD [1]
2023
YTD [1]
2017-23
Total [2]
 CVS Return 8% -20% -5%
 S&P 500 Return 3% 19% 105%
 Trefis Multi-Strategy Portfolio 7% 28% 310%

[1] Month-to-date and year-to-date as of 7/31/2023
[2] Cumulative total returns since the end of 2016

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