Will CVS Health (CVS) Keep its Earnings Streak Alive in Q3?
CVS Health Corporation (CVS) is scheduled to report its third-quarter 2014 results before the opening bell on Nov 4. Last quarter, the company had posted a positive earnings surprise of 2.73% while the four-quarter trailing average beat is pegged at 1.91%. Let’s see how things are shaping up prior to this announcement.
Factors at Play
Following an unimpressive first quarter of 2014, CVS Health – formerly known as CVS Caremark – impressed us with second quarter beats on both the earnings and revenue front. The Pharmacy Services segment was positively impacted by growth in specialty pharmacy and favorable purchasing economics while the Retail Pharmacy segment benefited from increased sales and an improved margin rate, partially offset by incremental store operating costs associated with operating more number of stores.
Moreover, both the Pharmacy Services and Retail Pharmacy segments were favorably impacted by increase in generic drug dispensed and the State of California's finalization of Medicaid reimbursement rates relative to the company’s historic rate estimates.
Based on a strong second quarter performance, CVS raised its adjusted earnings per share (EPS) guidance for 2014 to the range of $4.43 to $4.51 from the earlier guided $4.36 to $4.50. In addition, consolidated net revenue growth is expected in the range of 8% to 9%, a 260 basis point increase in the mid-point from the prior guidance of5.25% to 6.5%.
Driven by its expectation of better-than-expected growth within specialty pharmacy, fueled by a combination of both inflation and new product mix, CVS Health increased its PBM revenue growth outlook to the range of 13.75%−14.75%, a 5% increase from its prior guidance. Further, basedon itsdecision to exit the tobacco category, CVS narrowed its retail revenue outlook to 1.25%−2% and revised its total same-store sales growth outlook to 0.25%−1%.
For the third quarter of 2014, the company expects to report adjusted EPS in the range of $1.11 to $1.14. The current Zacks Consensus Estimate of $1.14 is coincides with the upper end of the guidance range.
The company continues to benefit from a strong selling season, favorable industry dynamics and increasing shareholder value. The generic wave in the pharmaceutical industry continues to improve profitability for CVS. The company witnessed robust double-digit growth in PBM on the back of a strong selling season. Moreover, having generated strong free cash flow in the quarter, the company is confident of achieving its 2014 goals.
Earnings Whispers?
Our proven model does not conclusively show that CVS Health is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is, however, not the case here as you will see below.
Zacks ESP: CVS Caremark’s earnings ESP is 0.00%, as both the Most Accurate estimate and the Zacks Consensus Estimate stand at $1.13.
Zacks Rank: CVS Caremark has a Zacks Rank #3 (Hold) which increases the predictive power of ESP. However, a 0.00% ESP makes surprise prediction difficult.
Note that we caution against stocks with Zacks Ranks #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks that Warrant a Look
Here are three companies you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:
AmSurg Corp. (AMSG) has an earnings ESP of +18.52% and sports a Zacks Rank #1 (Strong Buy). AmSurg will be reporting third-quarter earnings on Nov 4.
CareFusion Corporation (CFN) has an earnings ESP of +4.17% and carries a Zacks Rank #3. CareFusion is expected to report its first-quarter 2015 earnings on Nov 6.
Henry Schein, Inc. (HSIC) has an earnings ESP of +1.53% and holds a Zacks Rank #2 (Buy). Henry Schein will be reporting third-quarter earnings on Nov 6.
Read the Full Research Report on CFN
Read the Full Research Report on AMSG
Read the Full Research Report on HSIC
Read the Full Research Report on CVS
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