To The Moon

$CVS Health(CVS)$ is scheduled to report its four-quarter 2024 earnings on 12 Feb before market open.

There have been an ongoing Department of Justice lawsuits against CVS and Walgreens Boots Alliance (WBA) related to allegations of illegal opioid distribution. This will impact how their retail stores would be performing and CVS is also expected to close approximately 270 stores in 2025

The market is currently projecting CVS to report $0.92 earnings per share in its upcoming report, this is a decline of more than 50% from the same period last year. Revenues are projected to reach $97.06 billion, increasing 3.5% from the same quarter last year.

CVS Health (CVS) Last Earnings Call Neutral Saw A Modest 0.64 Drop In Its Share Price Since

Since its last earnings call on 06 Nov 2024 where the sentiment was neutral, CVS has seen a negative 0.64% change to its share price, the earnings call reflects a challenging environment with significant issues in the Health Care Benefits segment, including elevated utilization and mispricing in Medicare and individual exchange products.

However, there are strong performances in the Pharmacy and Consumer Wellness, Health Services, and Health Care Delivery segments, driving optimism for future growth.

CVS Health (CVS) Guidance To Focus On Improving Health Care Benefits segment

During the CVS Health Third Quarter 2024 Earnings Call, the executives provided a comprehensive overview of the company's financial and operational performance. CVS Health reported adjusted earnings per share of $1.09 and total revenues exceeding $95 billion. The company's Health Services segment showed strong performance, while the Pharmacy and Consumer Wellness segment achieved a record-high retail pharmacy script share of 27.3%.

However, the Health Care Benefits segment faced challenges due to elevated utilization levels, with a medical benefit ratio of 95.2% and premium deficiency reserves of approximately $1.1 billion impacting results.

Despite these challenges, CVS Health's leadership expressed confidence in the long-term prospects of its Aetna business, highlighting strategic benefit design and pricing changes aimed at driving a multi-year earnings recovery. Additionally, the company is not providing a formal outlook for 2024 but anticipates improved financial performance in 2025 due to strategic actions taken across its businesses.

Here Are Some Factors That Might Affect CVS Q4 2024 Earnings

Q3 Record Revenue Growth But Q4 Might See A Slight Decline Due To Medicaid

Third quarter revenues were approximately $95.4 billion, an increase of approximately 6% over the prior year quarter.

In Q3, CVS report that there is continued elevated levels of utilization, higher acuity in Medicaid, and inadequate rate adjustments have pressured performance. This could continue into Q4 as the trends seem to develop unfavorably, hence fourth quarter reported MBR could increase by over 700 basis points compared to the fourth quarter of 2023.

Continued To See Success In Pharmacy and Consumer Wellness

The segment achieved a record high retail pharmacy script share at 27.3% and increased revenue by over 12% versus the prior year. CVS Health's integrated biosimilar approach drove down commercial specialty trend to 1.3%, the lowest level in recent history.

Health Services Segment

Adjusted operating income increased 17% from the prior year quarter, driven by improved purchasing economics and growth in specialty pharmacy.

Health Care Segment Performance might Slowed

There is strong performance coming from Health Care Delivery Assets in Q3, which saw Signify generating revenue growth of approximately 37%, and Oak Street revenue increased by approximately 36%.

We need to take note that the Health Care Benefits did suffer an adjusted operating loss of $924 million due to elevated utilization and premium deficiency reserves. So this might be coming onto Q4 earnings as well. This will drag the 2025 fiscal year earnings estimate lower.

Challenges And Store Closures

Miscalculations during the 2023 bid processes led to significant burdens on Aetna's current results, including higher-than-expected utilization and disappointing risk adjustment updates. CVS Health took a restructuring charge of nearly $1.2 billion, including impairment charges for approximately 270 stores expected to close in 2025.

Technical Analysis - Exponential Moving Average (EMA)

We are not seeing much bullish signal coming out from CVS before its earnings and though we have seen the 12-EMA cross above the 26-EMA, but CVS might lose that level if it continue to decline on 11 Feb (Tues).

If that happen, we could see downtrend which happen before at the beginning of December 2024, so currently there is concerns from investors on how CVS would be managing the cost of its store closures and also the retail earnings might come in weaker.

The Health Care Benefits losses might widen in Q4 due to elevated utilization and premium deficiency reserves. These factors could bring CVS below the 12/26 EMA which could signal a downtrend coming.

I would not be looking to enter into this stock yet, as the investors sentiment as seen from RSI is also in a wait and see mode, there will not be large volume coming.

Hence, we can hope that CVS continue to trade sideways until 12 Feb before the market open when it announced its Q4 2024 results.

Summary

I would think CVS is in a position where it might suffer from a weaker retail sales and an increase in its restructuring charge due to store closures, so we will have to see if the other business segments could compensate for this losses and weak sales.

Appreciate if you could share your thoughts in the comment section whether you think CVS could report a less-than-expected earnings result.

@TigerStars @Daily_Discussion @Tiger_Earnings @TigerWire appreciate if you could feature this article so that fellow tiger would benefit from my investing and trading thoughts.

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.