CVS Feels Benefits And Drawbacks From The Pandemic
Last week, CVS Health (NYSE: CVS) reported fourth-quarter earnings that beat Wall Street's expectations as prescription volume lifted sales and the drugstore chain attracted new customers with Covid-19 testing and vaccines. CEO Karen Lynch announced that the drug store chain will accelerate investments to go beyond filling prescriptions into health-care services.
Figures
CVS posted revenue of $69.55 billion topped $68.75 billion expected as total revenue rose 4%. All of CVS's business segments beat expectations with pharmacy services revenue falling 1.9% to $36.36 billion due to continued price compression. Retail and long-term-care revenue rose 6.6% to $24.06 billion and healthcare benefits revenue expanded 11.4% to $19.10 billion. Same-store sales grew 5.3% compared to last year's quarter and even 7.5% in the pharmacy division as prescription volume rose but they were pressured down 1.8% as customers skipped on store visits and flu and cold medication that became less ‘important' compared to COVID-19.
Net income fell from last year's $1.75 billion to $973 million, or 74 cents a share. Excluding nonrecurring items, adjusted earnings per share amounted to $1.30. Although they declined compared to the prior year's $1.73, they still topped FactSet's consensus of $1.24.
Although foot traffic and front-of-store sales dropped because of the pandemic, total prescription volume grew YoY.
The Impact Of A Global Health Crisis
On the one hand, the global health crisis has caused some people to skip trips to the doctor's office. On the other hand, fewer medical visits have led to lower expenses for CVS-owned health insurer, Aetna, which was acquired in 2018 and was previously led by the new CEO. The pandemic has also provided an opportunity for CVS to show off its telemedicine and its MinuteClinic healthcare services. The pandemic also created new business opportunities like drive-thru testing.
All in all, CVS said it anticipated the pandemic to have an immaterial impact on its 2021 earnings.
2021
The company warned that the fiscal first quarter will be its lowest in earnings for the year owed to a weaker flu season and costly investments in its Covid vaccine program. Although health care benefits division will have higher earnings in the first half of the year, they are expected to fall to their lowest in the fourth quarter.
2021 earnings per share are expected in the range between $6.06 and $6.22, but after adjustments, it comes down between $7.39 and $7.55 per share. Full-year cash flow from operations is projected in the range between $12 billion to $12.5 billion.
Expanding On Vaccines
CVS is gradually taking on a larger role with the vaccines as supply increases. Two weeks ago, the federal government shipped doses directly to retail pharmacies' stores, including CVS in 11 states.
CVS has been a major administrator of vaccines in long-term-care facilities and is expected to play a more significant role. Its Covid-19 testing efforts have connected it to around eight million new customers and further vaccinations will allow the company to forge many new ties. Because customers need to sign-up digitally, CVS will gain access to a lot of email addresses and other contact details. After receiving vaccine doses, consumers will be offered services and encouraged to browse.
Karen Lynch expects some deferred healthcare use in the first quarter before consumers go back to their usual utilization patterns later in the year.
Outlook
CVS would likely focus on areas where it has Medicaid business as well as places where CVS HealthHub stores are located. It has around 650 facilities around the country that offer extra health services, many of which are focused on chronic conditions. The idea is to integrate the services and come up with a variety of offerings such as the plans that are now being sold to employers under the Aetna Connected brand. Next year, the drugstore company will reenter the individual public exchange created by the Affordable Care Act that enables people to buy their own health insurance plans. Overall, pharmacy and insurance giant's results managed to beat analysts' expectations with in-line numbers and in-line guidance. Everything seems to be moving along solidly.
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