CVS’s stock gains as profit beat offset lowered outlook on higher medical costs

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Shares of CVS Health Corp. gained ground Wednesday, after the healthcare-services and drugstore chain beat fourth-quarter profit expectations by a wide margin, but lowered its full-year outlook because of “elevated medical cost trends.”

Revenue for the latest quarter also rose well above forecasts, with particular strength in the healthcare-benefits and services businesses.

The stock

rallied 1.7% toward a three-week high in premarket trading.

On the downside, CVS said the medical-benefits ratio, or the percentage of premiums that are spent on medical benefits, increased to 88.5% from 85.8%, exceeding the FactSet MBR consensus of 88.2%.

After an analysis of medical costs for the fourth quarter, and “recognizing potential implications for elevated medical cost trends in 2024,” the company lowered its guidance for 2024 adjusted earnings per share to “at least” $8.30 from “at least” $8.50. The current FactSet EPS consensus is $8.47.

For the fourth quarter, net income fell to $2.05 billion, or $1.58 a share, from $2.33 billion, or $1.77 a share, in the same period a year ago. Excluding nonrecurring items, adjusted EPS of $2.12 beat the FactSet consensus of $1.98. That marked the biggest EPS beat in six quarters, according to FactSet data.

Revenue grew 11.9% to $93.81 billion, above the FactSet consensus of $90.58 billion.

Among the company’s business segments, health-care-benefits revenue rose 16.1% to $26.73 billion, beating expectations of $26.21 billion, and health-services revenue increased 12.3% to $49.15 billion, above expectations of $46.69 billion.

Pharmacy and consumer-wellness revenue was up 8.6% to $31.19 billion, compared with expectations of $29.83 billion, amid increased prescription volume, higher prices on branded drugs and increased contributions from vaccinations.

CVS’ stock has gained 5% over the past three months through Tuesday, while the Health Care Select Sector SPDR ETF
has climbed 12.2% and the S&P 500 index

has advanced 13.2%.

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