Health care services provider CVS Health Corp. (NYSE: CVS – $57.34) reported adjusted earnings per share of $1.89, beating both last year’s results and Wall Street consensus estimates of $1.69. Total revenue was $63.4 billion, which included revenue from Aetna and not comparable to last year’s figure, but higher than Street estimates of $62.63 billion. The Pharmacy Benefits unit brought in revenue of $34.84 billion in the second quarter, a 4.2% rise, helped by higher prices of branded drugs offset by continued pressure from high dispensing rates of generic drugs. The Retail/Long-Term Care segment had revenue of $21.447 billion vs. $20.672 a year ago – a 3.7% gain. Same-store sales at the company’s front-end stores that sell over-the-counter drugs and sundries rose 2.9%. The company took a $3.9 billion pre-tax goodwill impairment charge in the second period related to its 2015 acquisition of Omnicare, as long-term care pharmacy results continue to weigh on results.
The company said it expected calendar year adjusted earnings per share of between $6.89 and $7.00. It had previously forecast a range of $6.75 to $6.90 a share and compared to the consensus view of $6.83, as it continues to remove costs. Management also raised cash flow guidance to $10.1 billion to $10.6 billion from $9.8 billion to $10.3 billion. The shares offer above-average total return potential, especially on a risk-adjusted basis. The move to be an all-inclusive health care provider (drugstores, mini-clinics, health insurance and pharmacy benefits management), sets the company apart from the field. The current valuation of 8.3 times estimated full-year earnings and a yield of 3.7% provides for limited downside risk at current levels and shares can be considered for income and long-term price recovery.