CVS Health Corp (NYSE: CVS) has reported the adjusted earnings per share of $1.71 in the fourth quarter 2016 ended 31st December, beating the analysts’ estimates for the adjusted earnings per share of $1.67. The company had reported the adjusted revenue growth of 11.7 percent to $45.97 billion in the fourth quarter 2016, missing the analysts’ estimates for revenue of $46.48 billion. The revenue grew in Q4 2016 due to the strength in its PBM business. CVS’s growth in the recent quarters is due to the strong demand for its PBM business and specialty pharmacy business, that provides drugs to people with expensive chronic conditions, such as rheumatoid arthritis.
Additionally, the revenues in the company’s retail unit have increased 4.7 percent to $20.85 billion in the fourth quarter, largely due to the addition of Target Corp’s pharmacies. The same-store sales have decreased 0.7 percent and the front-store same-store sales fell 2.9 percent. The same-store sales for the front store, that include over-the-counter drugs and cosmetics, were negatively impacted by softer traffic. In addition, the net income attributable to CVS grew to $1.71 billion in the fourth quarter 2016 from about $1.50 billion a year earlier.
Moreover, PBMs negotiate the drug benefits for health plans and employers and have in recent years taken an increasingly aggressive stance in price negotiations with drugmakers. They often extract discounts and after-market rebates from drugmakers in exchange for including their medicines in PBM formularies with low co-payments.
Furthermore, CVS in the fourth quarter 2016 has opened 40 new retail stores and closed 25 retail stores. In addition, CVS has relocated 16 retail stores. As of December 31st, 2016, CVS has operated 9,709 retail stores, including pharmacies in Target stores, in 49 states, the District of Columbia, Puerto Rico and Brazil. On the other hand, CVS intends to close approximately 70 retail stores during 2017 and expects to take a charge of approximately $225 million associated with the remaining lease obligations of such stores. Moreover, the vast majority of the store closures are expected to occur in the three months ending March 31st, 2017. In connection with such anticipated store closures, CVS has recorded a $34 million asset impairment charge in the three months ended December 31st, 2016.
For the first quarter ending in April 2017, CVS expects the earnings-per-share to be in the range from $1.07 to $1.13. The analysts are expecting the adjusted earnings per share of $1.11 for the Q1 2017. For the full year 2017, CVS expects the earnings per share to be in the range of $5.77 to $5.93.
CVS stock has fallen 16.04% in a year (source: Google Finance). According to tipranks.com, 10 analysts has covered the stock while recommending a “Strong Buy”. CVS has an average price target of $86.55, which is a further upside of 13.78%.