Pharmacy and health insurer CVS Health (NYSE: CVS – $57.55) reported better-than-expected first-quarter results in the first full quarter that includes results from its acquisition of Aetna. Adjusted earnings climbed to $1.62 a share compared with $1.48 a share in the same period of 2018. The consensus was for $1.51 a share. Revenue rose 35% to $61.6 billion, beating the Street view for $60.4 billion. Operating expenses jumped 68% after the Aetna acquisition, which was completed last November in a deal that valued the managed health company at about $70 billion. The pharmacy-services segment for Woonsocket, Rhode Island-based CVS rose to $33.6 billion from $32.5 billion in the same period of 2018. The increase was primarily due to brand name drug price inflation as well as increased total pharmacy claims volume, partly offset by continued price compression and an increased generic dispensing rate. Revenue in the retail and long-term care segment increased 3.3% to $21.1 billion, also amid higher volumes and prices that were partly offset by continued reimbursement pressure and the impact of generic drug introductions. Health-care benefits revenue surged to $17.9 billion from just $1.32 billion previously after the Aetna deal. Before the takeover, the segment consisted only of CVS’ SilverScript Medicare Part D prescription drug business.
For 2019, CVS sees adjusted earnings per share of $6.75 to $6.90 from a range of $6.68 to $6.88 previously. For the second quarter, the firm is looking for adjusted EPS of $1.68 to $1.72 a share, both higher than current consensus of $6.79 and $1.69 per share, respectively.
The position in CVS Health has recently moved to the income account as the recovery for the company may take time. The current yield stands at 3.68% and the undervalued shares (8.5 times estimated 2019 earnings) are up about 6% in early trading. Positions can be considered in a well-diversified income account for long-term recovery.