CVS Health has successfully navigated through increased costs within its insurance sector, significantly surpassing the profit forecasts set by analysts. The pharmacy benefits manager and drugstore chain posted a profit of $1.64 billion, translating to $1.30 per share for the quarter that concluded on December 31. In the same period the prior year, CVS had reported earnings of $2.05 billion, or $1.58 per share.
After accounting for one-time costs and benefits, the adjusted earnings stood at $1.19 per share, exceeding the projected earnings of 89 cents per share by analysts according to Zacks Investment Research. Consequently, upon the market’s opening on Wednesday, shares surged by over 11%.
Despite the strong profit performance, the figures fell short compared to the previous year’s results, which CVS attributed to rising medical expenses within its insurance division and declining Medicare Advantage star ratings for the payment year of 2024.
Headquartered in Woonsocket, Rhode Island, CVS Health operates one of the largest drugstore chains in the U.S., while also managing a substantial pharmacy benefit management business overseeing prescription drug coverage for various employers, insurers, and large clients. Additionally, the company provides services to nearly 27 million individuals through its Aetna insurance segment.
However, the health care giant faces challenges from managing Medicaid coverage across several states and rising costs associated with its Medicare Advantage program, which consists of private alternatives to the federal coverage primarily catering to seniors aged 65 and above.
In its retail operations, CVS Health is nearing the conclusion of a strategic multi-year initiative, which entails closing more than 1,100 stores.
The revenue for the quarter reached $97.71 billion, surpassing Wall Street’s expectations of $97.06 billion.
Looking ahead, CVS Health anticipates adjusted earnings for the full year to be in the range of $5.75 to $6 per share, whereas analysts from FactSet have forecasted an average of $5.86 per share.
The company is aiming to recover from a challenging 2024, during which it had to lower its forecast multiple times and witnessed its stock price decline by approximately 43%.
Former CEO Karen Lynch resigned last October, and company executive David Joyner stepped in as her replacement. Shortly after, the company appointed four new members to its board, which included the CEO of Glenview Capital Management—a hedge fund that has criticized CVS for not realizing its full potential. Glenview currently owns about 1% of the company’s outstanding shares, based on information from FactSet.
