Upcoming CVS Earnings – Is It Time to Buy?

We already know that CVS had a bumper third quarter of 2022 whereby sales increased by 10% over the previous year to over $81 billion, while its adjusted operating income increased by about 4% to $4.2 billion. Over 6% more than the same period the previous year, adjusted profits per share for the quarter were $2.09. The third quarter and year-to-date cash flow from operations were $9.1 billion and $18.1 billion, respectively.

So far it’s generally anticipated that the parent company of CVS Pharmacy, CVS Caremark, and Aetna, among other healthcare-related companies in the US, could report slightly more muted earnings this coming week.

Although it is expected that the company will show consistent growth in its healthcare and pharmacy services businesses, the company’s overall performance will potentially be negatively impacted by greater expenses and fewer contributions from the delivery of the Covid-19 vaccine and related testing.

Considering growing expenses and various headwinds, are CVS shares now a buy? Let’s examine the company’s near-term challenges and their potential impact on its stock performance.

Growth Prospects

The company has made significant headway in facilitating patient access to care through digital and virtual means in the past 12 months. According to the most recent report from November of 2022, the company has gained roughly a million digital consumers to its platform.

The new feature, which was released by CVS Health in the third quarter, gives customers greater freedom and flexibility when picking up their medicines, for example. Thanks to these advances, it’s expected that consumer involvement will increase across CVS Health’s businesses thanks to the company’s digital capabilities in health interactions, prescription services, and sales of health and wellness items.

Following an upsurge in the usage of telehealth and virtual care during the COVID-19 pandemic, virtual primary care and virtual-first health plans have become a trend in the healthcare industry. In September, the business announced its intention to acquire Signify Health for around $8 billion in cash, a deal that is expected to be finalized early this year.

In addition, an increased pharmacy and front-store sales growth is expected to have boosted the company’s retail/long-term care sector, as it did in the third quarter. The category probably saw sustained sales of COVID-19 OTC test kits in the to-be-reported quarter, with economies opening up again and infectious diseases still fairly present. The company’s efforts to optimize the retail portfolio are expected to have paid off in the form of improved Q4 results.

Opioid Lawsuits All but Settled

To resolve legal claims over the widespread damage caused by opioids particularly in the US, CVS along with Walgreens (the two largest drugstore chains in the country) will pay a settlement of more than $10 billion over 10 years. This is despite there being no official admission of fault from either company.

After years of lawsuits over the pharma industry’s participation in the opioid crisis, the two companies have agreed to pay what may be one of the final waves of sizable settlements. Overdoses of opioids have been blamed for more than 500,000 fatalities in the United States during the last 20 years and unfortunately there appears to be little end in sight.

The settlement agreements with two states and a tribe all happened throughout the course of the third quarter 2022. However, substantially all opioid litigation and claims brought by other states, political subdivisions, and tribes against the Company will be settled over a 10-year period, starting in 2023. This will be organized under the parameters of a worldwide settlement framework, to which the Company agreed to in principle in October 2022. As a result, the company reported a $5.2 billion pre-tax charge in the third quarter of 2022 because of the projected liability for these claims.

What Do the Experts Say About Q4?

Back in late October last year, and for the second straight quarter, the company increased its projection for the whole year’s earnings off the back of better-than-expected third-quarter results. With good traffic and anti-viral medicine sales tied to Covid, the business anticipated adjusted profits per share for the complete year of between $8.55 and $8.65, up from the range of $8.40 to $8.60 that it disclosed in August.

Current estimates put CVS Health’s quarterly profit at $1.92 per share, down 3% from the same period last year. Over the last 30 days, the Zacks Consensus Estimate has increased by 0.3% and the current consensus profits prediction for the fiscal year is $8.63, which is up 2.7% from last year. This estimate from the leading investment research firm has been stable during the last 30 days.

The share price of CVS has spent much of 2022 moving in a range, and it is possible that the stock has now hit a low point from which it may rebound from, if both results and guidance are better than anticipated (a double bottom could be forming, leading to a potential rebound, but it has yet to be confirmed). In the last three months, the share price is down more than 16%.

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