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CVS Health Corp., the parent
company of insurance firm Aetna, reported solid results in the third quarter,
beating Wall Street earnings projections. However, the company also
acknowledged headwinds including declining Medicare Advantage Star Ratings,
the loss of Centene Corp.'s PBM business, a major legal settlement over
opioid overprescribing, and losses posted by newly acquired divisions.
The insurer reported $2.09 in
adjusted earnings per share (EPS), beating the Wall Street consensus
projection of $2.00. Executives project an end-of-year adjusted EPS of $8.55
to $8.65, slightly up from a previous projection of $8.40 to $8.60. Total
revenues across the firm increased by 10% year over year to $81.2
billion.
Lower Star Ratings, lost
PBM contract ding CVS
- CVS did have
some bad news to report, however. The firm's average Star Rating in MA
declined to 3.5 after, as CEO Karen Lynch put it during a conference
call with investors, "nearly a decade-long track
record of performing at 4 stars or better."
- "Improving
our star performance continues to be a top priority for the company. We
have the right actions in place to improve our star rating with our
ongoing quality and experience efforts as we address the specific
measures scored on the member surveys that contribute to star
ratings," Lynch added.
- In addition,
the firm will no longer administer Centene's pharmacy benefits. CVS lost
a competitive bidding process to Cigna Corp. for the Medicaid-focused
carrier's pharmacy benefits, which amount to about $40 billion in annual
drug spend.
- CVS also said
that it intends to spin off Omnicare, a long-term pharmacy business,
which has lost approximately $2.5 billion this year. CVS acquired the
firm in 2015 for $10.4 billion and $2.3 billion in debt.
Analysts are mostly
optimistic
- Evercore ISI
analyst Elizabeth Anderson downplayed the setbacks for CVS in her note
to investors. Third-quarter earnings were "a clearing event for CVS
stock in several ways," she wrote, citing the opioid settlement in
particular, and rated CVS "outperform."
- Oppenheimer
analyst Michael Wiederhorn wrote that "we believe CVS's long-term
outlook could benefit from the integrated model that Aetna brings.
However, we expect that to take time, while legacy operations and
headline risks are likely to remain. Although the valuation appears
attractive by historical levels, we expect some of these other moving
parts to dominate the story for the foreseeable future."
- Barclays plc.
analyst Steve Valiquette was cooler on CVS than his peers, rating the
stock "overweight," citing "headwinds" and a
"slightly softer outlook" on 2023 earnings than he had
hoped.
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