CVS shares tumbled by 18 percent early Wednesday after the giant pharmaceutical and insurance company reported its quarter results. CVS missed Wall Street analysts’ earnings and revenue estimates and decreased its full-year profit outlook. CWEB analysts have analyzed the reasons behind CVS’s stock fall and the insurance industry in the US.
CVS reported adjusted earnings per share of $1.31, while Wall Street analysts polled by LSEG projected $1.69 EPS. The pharmaceutical and insurance giant also posted lower revenue of $88.44 billion, while LSEG put the expected revenue at $89.21 billion.
CVS also changed its full-year guidance to adjusted earnings of at least $7 per share. Its previous guidance 2024 was at least $8.30 per share, slightly higher than LSEG analysts’ estimates of $8.28 per share.
Post-pandemic, many Americans are getting procedures such as joint or hip replacements and other methods that had been deferred during the pandemic. This has raised insurance costs across the industry.
CVS’s health insurance medical benefit ratio increased to 90.4 percent from 84.6 percent the previous year. FactSet estimates had expected a medical benefit ratio of 88.4 percent. A higher ratio means that the company has paid higher amounts in benefits, and the premium it collects is lower, leading to lower profitability.
CWEB believes that the health insurance industry will see lower profits with the increase in the number of procedures. Its medical benefit ratio could grow as more customers opt for procedures. In contrast, health insurance companies need to offer competitive health insurance plans.
CVS’s pharmacy benefit manager also lost a major unnamed client, which led to a quarter profit decrease. Although it did not name its client, in January, Tyson Foods announced that it had chosen PBM startup Rightway as the drug benefits manager in 2024 instead of continuing with CVS.
All these decisions have impacted CVS’s revenue and profits, as it wants to become a healthcare company rather than a large drugstore chain. CWEB thinks CVS needs to take forward-looking steps to continue its dominance as the largest pharmacy chain in America as competition increases.
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