CVS Health (CVS) stock tumbles as earnings, guidance miss expectations

CVS Health (NYSE: CVS) reported a decline in first-quarter profits and slashed its full-year earnings outlook, sending shares down more than 17% Wednesday as both earnings and revenue fell short of Wall Street expectations. The healthcare giant posted adjusted earnings per share (EPS) of $1.33 for the quarter, which was significantly below the analyst consensus of $1.71. Revenue for the quarter was $88.4 billion, also missing the consensus estimate of $89.33 billion.

The company's first-quarter revenue saw a 3.7% increase compared to the same period last year, driven by growth in the Health Care Benefits and Pharmacy & Consumer Wellness segments. However, this was partially offset by a decline in the Health Services segment. Despite the revenue growth, CVS Health's adjusted EPS of $1.31 represented a substantial decrease from $2.20 in the prior year, primarily due to a decline in the Health Care Benefits segment's operating results, which faced utilization pressure in the company's Medicare business.

CVS Health's President and CEO, Karen S. Lynch, commented on the results, stating, "The current environment does not diminish our opportunities, enthusiasm, or the long-term earnings power of our company. We are confident we have a pathway to address our near-term Medicare Advantage challenges." She emphasized the company's commitment to its strategy and belief in its assets to deliver value despite near-term pressures.

Looking ahead, CVS Health has revised its full-year 2024 guidance, now expecting a minimum adjusted EPS of $7.00, which is below the previous analyst consensus of $8.28. This revision reflects the company's expectation that the utilization pressure observed in the Health Care Benefits segment during the first quarter will continue throughout the year.

The stock's significant drop following the earnings release indicates investor concerns over the company's revised earnings forecast and current quarter performance. CVS Health's guidance adjustment and the first-quarter results have set a cautious tone for the company's financial outlook for the remainder of the year.

Reacting to the report, analysts at TD Cowen said the results were "well below expectations, which we believe were already muted given concerns coming into quarter of impact from higher than expected MA membership for 2024."

"Results suggest mgmt. severely underestimated utilization of new members, which looks to carry through the rest of '24 given guide down to at least $7.00 (from $8.30) & will likely take cons," added the firm.

Meanwhile, Goldman Sachs analysts stated that their initial view is that certain "drivers could result in 2025 EPS of at least ~$8, with the stock trading pre-market at ~7.5x this 2025 EPS level."

JPMorgan Stated: "A cut to guidance was somewhat expected by the buyside, but this seems deeper than expected. With that said, stock is trading at less than 10x the new 24 estimate and with stars coming back in 2025, investors also think that 2025 number should be higher than $7 for 2024.

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