CVS Stock Plunges as Medicare Advantage Costs Spike
CVS Health came up short of Q1 earnings estimates and slashed its full-year outlook as medical costs surged. Here's what you need to know.
CVS Health (CVS) stock plummeted more than 18% at the start of Wednesday's trading session after the pharmacy chain disclosed weaker-than-expected earnings and revenue for its first quarter and slashed its full-year outlook.
In the three months ended March 31, CVS reported revenue of $88.4 billion, an increase of 3.7% from the year-ago period. The gain was driven by 24.6% top-line growth in the company's Health Care Benefits segment, to $32.2 billion.
However, earnings per share (EPS) decreased 40.5% year-over-year to $1.31. This was due primarily to a declines in operating income for its Health Care Benefits business as a result of rising medical costs associated with its Medicare Advantage plans.
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"The current environment does not diminish our opportunities, enthusiasm, or the long-term earnings power of our company," CVS CEO Karen Lynch said in a statement. "We are confident we have a pathway to address our near-term Medicare Advantage challenges."
The quarterly results fell well short of analysts' expectations. According to CNBC, Wall Street was calling for revenue of $89.2 billion and earnings of $1.69 per share.
As a result of the weak performance in the first quarter and the company "recognizing the potential for continued elevated medical cost trends in the remainder of 2024," CVS lowered its full-year outlook. It now anticipates earnings per share of at least $7.00, down from its previous guidance of at least $8.30 per share. Cash flow from operations is forecast to be at least $10.5 billion, down from its previous guidance of at least $12 billion.
"We remain committed to our strategy and believe that we have the right assets in place to deliver value to our customers, members, patients, and shareholders," Lynch said.
Is CVS stock a buy, sell or hold?
The earnings-related setback has yet to phase analysts who are very bullish on the healthcare stock.
According to S&P Global Market Intelligence, the consensus analyst target price for CVS stock is $87.96, representing implied upside of more than 56% to current levels. Additionally, the consensus recommendation is Buy.
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