Health Benefits Business Propels CVS/Aetna to Strong 1Q Results

by Leslie Small

CVS Health Corp. impressed Wall Street analysts with strong first-quarter 2021 financial results, which were largely driven by the performance of its PBM and health benefits segments. Evercore ISI analysts, for example, gushed that the diversified health care giant’s results were "exciting" because they provided "some glimmers of the bull thesis playing out."

"All three segments rowed in unison and put up better than expected results" despite facing challenges in the retail segment, a weak cough/cold/flu season, and a "re-ramping of health care utilization," the equities analysts wrote in a May 4 note to investors.

Indeed, President and CEO Karen Lynch began her prepared remarks during the company's first-quarter earnings call by noting that "each of our businesses performed at or better than our expectations this quarter." She called out CVS's Health Care Benefits segment — which houses Aetna — as delivering strong results "fueled by continued growth in government services."

Overall medical membership rose by 214,000 compared to the fourth quarter of 2020, reflecting rising Medicare and Medicaid enrollment and declining commercial membership. On a year-over-year basis, medical membership stayed largely flat.

Citi analyst Ralph Giacobbe noted that the Health Care Benefits segment's medical loss ratio of 83.2% came in lower (better) than predictions, helped along by prior-year reserve development from a 2020 that saw historically low health care utilization. "This helped drive higher operating profit/margin in the segment," Giacobbe observed.

Health care utilization across CVS's insurance business lines "approached near normal baseline levels" during the first quarter, according to Lynch. Quarterly adjusted operating income for the Health Care Benefits segment was $1.8 billion, up 19.5% year over year, noted Chief Financial Officer Eva Boratto.

CVS executives during the earnings call also divulged a few more details about the firm's decision to bring Aetna plans back into the ACA exchanges in 2022. "We expect to enter up to eight states where we believe we can make a meaningful impact and maximize returns with our first ever Aetna-CVS branded offerings," Lynch said in her prepared remarks.

CVS's overall quarterly adjusted earnings per share (EPS) was $2.04, eclipsing the Wall Street consensus estimate of $1.73 and the $1.91 per share it earned in the first quarter of 2020. The company also raised its 2021 adjusted EPS guidance to a range of $7.56 to $7.68.

From Health Plan Weekly