CVS posts big earnings beat, raises full-year forecast

CVS Health smashed Wall Street's second-quarter expectations, with its three businesses posting better-than-expected results. The company also raised its full-year forecast on Wednesday.

Here's what the company reported compared with Wall Street estimates, based on a survey of analysts by Refinitiv:

• Earnings per share: $1.89, adjusted, vs. $1.69 expected
• Revenue: $63.43 billion vs. $62.65 billion expected

Prices of brand name medicines rose in the quarter, boosting CVS' drugstore and pharmacy benefit manager's results. Both units make more money when prices are higher. Drugmakers, facing political scrutiny, had shown reluctance to hike their prices earlier this year.

CVS' pharmacy filled 19% more prescriptions this quarter than in the same period last year, which the company attributed to clinical programs intended to keep people on their prescribed medicines. Sales in the front of CVS' drugstores also rose, mostly thanks to an increase of people buying health products like cough medicine.

The company's newly acquired Aetna health insurance business also beat Wall Street's revenue expectations, reaching $17.4 billion in the quarter. CVS is trying to prove to investors that it can integrate Aetna and transform itself into an innovative health-care company.

CVS reported second-quarter net income of $1.93 billion, or $1.49 per share, up from a loss of $2.56 billion, or $2.52 per share a year earlier. When adjusted, CVS earned $1.89 per share, above the $1.69 per share expected by analysts surveyed by Refinitiv.

Net sales reached $63.43 billion, up 35% from the year ago-quarter's $46.92 billion, largely because of the Aetna health insurance business CVS acquired. Analysts had anticipated $62.65 billion.

The company now expects full-year adjusted earnings between $6.89 and $7 per share, up from the previously guided range of $6.75 to $6.90 a share.

Shares of CVS rose 7.45% on Wednesday.

"We are transforming our company and the health-care industry and accelerating enterprise growth as we move forward," CVS CEO Larry Merlo told analysts on a conference call.

CVS spooked the Street earlier this year when it guided well below analysts' expectations. It has raised the estimate a few times since, though the current forecast still falls shy of the $7.41 per share that analysts polled by Refinitiv had initially expected.

"The numbers look pretty good in relative terms," said Jefferies health-care analyst Jared Holz. "On an absolute basis, estimates for CVS have been coming down fairly materially over the past six months, so compared to where they were starting at the beginning of the year, it looks a little bit less compelling."

CVS still faces a number of threats, including political pressure to lower drug prices. The Trump administration proposed eliminating rebates from government programs, a move that would affect CVS' business. The White House withdrew the plan last month and Merlo applauded the decision Wednesday.

"The administration's withdrawal of the rebate rule provides perhaps the most significant recognition to date of the importance and the value of the PBM and the significant cost increases that would have resulted in eliminating the
power of formularies to drive price discounts and lower premiums for Medicare Part D beneficiaries, " he said.

But the proposal found new life in a bipartisan drug pricing bill and lawmakers appear hellbent on passing legislation to lower drug prices.

CVS' drugstores also face competition from e-commerce giant Amazon. Rival drugstore chain Walgreens on Tuesday said it would close 200 stores. CVS Pharmacy President Kevin Hourican told analysts that CVS will review the 500 leases that come up for renewal every year and will slow the pace of store openings by one-third.

Earlier this week, CVS announced it would expand its membership program CarePass nationwide in a bid to attract millennial shoppers.

Investors want to see whether CVS can integrate Aetna, the health insurer it acquired for $70 billion. CVS is touting its new health-focused stores, called HealthHUBs, as an example of how the two can work together. CVS introduced the first three stores in Houston earlier this year and announced earlier this summer it would open 1,500 HealthHUBs by the end of 2021.

Shares of CVS have slid 18% this year. The S&P health-care index has risen 3.6% in the same period.