CVS Health Corp (NYSE:CVS) stock rose 1.37% (As on November 2, 11:47:27 AM UTC-4, Source: Google Finance) after the company tempered its forecast for 2024 earnings to account for potentially higher medical costs at its insurance unit as older adults increasingly avail healthcare services deferred during the pandemic CVS’ health insurance business reported better-than-expected premiums of $24.66 billion in the third quarter, but its medical costs were high, reflecting the increased utilization of services under government-supported plans for older adults seen across the industry this year. CVS’ medical benefit ratio, or the percentage of claims paid compared to premiums collected, was 85.7% in the third quarter, compared with analysts’ estimates of 85.1%, according to LSEG data. Revenue at its health services business, under which CVS operates the PBM, rose 8% to $46.89 billion, partly driven by growth in specialty pharmacy and higher prices of branded drugs.
PBMs have come under heightened scrutiny over their role in surging healthcare costs in the United States, with several bills in the works that would require them to make their business dealings public. The Federal Trade Commission is also investigating their practices. CVS’ pharmacy and consumer wellness segment recorded 6% revenue growth to $28.87 billion, boosted by higher drug prices and prescription volume.
CVS in the third quarter of FY 23 has reported the adjusted earnings per share of $2.21, beating the analysts’ estimates for the adjusted earnings per share of $2.13. The company had reported the adjusted revenue growth of 10.6 percent to $89.76 billion in the third quarter of FY 23, beating the analysts’ estimates for revenue of $88.29 billion. Adjusted operating income increased 2.5% primarily driven by an increase in the Health Services segment, partially offset by a decline in the Health Care Benefits segment. Adjusted operating income for the Pharmacy & Consumer Wellness segment remained relatively consistent compared to the prior year.
The company said investors should focus on the lower half of its 2024 earnings forecast of $8.50-$8.70 per share made in August as it was uncertain about utilization of services by members of government-supported Medicare insurance plans. This is versus the analyst consensus of $8.58.
Mizuho analyst Ann Hynes said this was the third time the company had cut its 2024 forecast, disappointing Wall Street. The company has confirmed cash flow from operations guidance range of $12.5 billion to $13.5 billion