- CVS Health Corp. (CVS) shares jumped over 15% after reporting Q4 results that beat expectations with an adjusted EPS of $1.19 and revenue growth of 4.2% to $97.7 billion.
- Despite strong overall performance, the Health Care Benefits segment saw profitability squeezed by a higher medical cost ratio at 94.8%, due to increased Medicare Advantage utilization, with expectations for stabilization in 2025.
- The Health Services and Pharmacy & Consumer Wellness segments drove revenue above forecasts, but CVS faces ongoing challenges like client losses, pricing pressure, and reimbursement issues, with 2025 guidance showing cautious optimism.
CVS Health Corp. (CVS) saw its shares surge over 15% to $63.42 in early trading on Wednesday, following a strong fourth-quarter performance that outstripped Wall Street’s expectations. The company achieved an adjusted EPS of $1.19, significantly above the consensus of $0.92, with revenues climbing 4.2% to $97.7 billion, fueled by robust growth across all its major business segments. Despite this, the Health Care Benefits segment, which includes the insurance division, faced challenges with rising medical costs, pushing the medical cost ratio up to 94.8% from 88.5% the previous year, primarily due to increased utilization in Medicare Advantage plans.
The Health Services segment, encompassing CVS’s pharmacy benefit management (PBM) business Caremark, reported revenues of $47.02 billion, beating forecasts despite some client attrition and pricing pressures. It managed 499.4 million pharmacy claims, slightly exceeding estimates. Meanwhile, the Pharmacy & Consumer Wellness division enjoyed a 7.5% revenue increase to $33.51 billion, bolstered by higher prescription volumes and a beneficial drug mix, although it continues to battle with reimbursement challenges.
Looking forward, CVS has set its sights on 2025 with an EPS guidance of $5.75 to $6.00, aligning with analyst projections, and anticipates generating about $6.5 billion in operating cash flow alongside $132.1 billion in Healthcare Benefits revenue. CEO David Joyner’s strategy appears to be gaining traction, with expectations that medical costs will stabilize as operational efficiencies are realized. However, with the stock rallying 40% year-to-date and an RSI indicating potential overbought conditions, investors might approach with caution. The sustainability of CVS’s momentum hinges on its ability to manage costs effectively in the insurance business while maintaining growth in its pharmacy and health services sectors.
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