CVS no longer sees earnings growth next year: ‘it’s not an earnings story’

CVS Health Corp (NYSE: CVS) is up 5.0% this morning after reporting its financial results for the second quarter that topped expectations.

CVS forecasts weakness moving forward

On the downside, though, the healthcare company said it now expects to come in shy of its previously laid out earnings targets for 2024 and 2025.

Shawn Guertin – the Chief Financial Officer of CVS Health cited uncertainty related to Medicare Advantage as well as the consumer environment and said investors should not expect earnings growth next year. Still, Hightower’s Stephanie Link said today on CNBC’s “Squawk Box”:

I think this is a really interesting story. It’s not really an earnings story at this point in time because there’s a lot of moving parts. I thought it was a good quarter, revenue up, a bit better on the margin.

At writing, the healthcare stock is down 15% for the year.

CVS has been big on mergers and acquisitions

CVS did, however, reiterate its current-year earnings guidance of $8.50 a share to $8.70 a share on Wednesday. According to Link:

They’ve done $19 billion of M&A in last few years. Investors want to see return on this change to primary care strategy. That’ll take time for people to appreciate but there are synergies to be had.

Earlier this year, CVS closed its $10.6 billion acquisition of Oak Street Health.

The drugstore chain and healthcare services company attributed much of the strength in its recently concluded quarter to health care benefits revenue that was up 7.6%.

CVS Health Q2 earnings snapshot

• Net income printed at $1.90 billion versus the year-ago $3.03 billion
• Per-share earnings also declined materially from $2.29 to $1.48
• Adjusted EPS came in at $2.21 as per the earnings press release
• Revenue went up 10.3% on a year-over-year basis to $88.92 billion
• FactSet consensus was $2.12 per share on $86.41 billion in revenue

Earlier this week, the Wall Street Journal said CVS Health will lower its headcount by 5,000 to cut costs. Hightower’s Link concluded:

They have a $40 billion cost structure that they can chip away at and as they do, they can talk about how they’ll return cash to shareholders. That’ll be a very big theme for the company.