Morningstar

CVS Health Has Q2 That Beats Expectations

However, investors may be disappointed that CVS backed off its 2022 goal of double-digit earnings growth.

Securities In This Article
CVS Health Corp
(CVS)

Narrow-moat CVS Health CVS turned in second-quarter results that beat expectations and raised its 2021 outlook slightly. At first glance, we plan to boost our $92 fair value estimate by the low single digits on a percentage basis to account for recent trends and potential policy change benefits in the long run. However, investors may be disappointed that CVS backed off its 2022 goal of double-digit earnings growth on the call.

For the quarter, CVS beat consensus expectations substantially and raised its outlook. Revenue reached $72.6 billion (11% growth), above FactSet consensus of $70.2 billion, and adjusted EPS reached $2.42 (above consensus of $2.07) on better-than-expected results from the pharmacy benefit management and retail segments. With that strong performance, management raised its 2021 EPS outlook to $7.70-$7.80, or 3%-4% growth (up from 1%-2% growth previously and flat to declining growth originally). We were also pleased to see CVS increase its 2021 guidance for cash flow, the key driver of our fair value estimate, to $12.5 billion-$13.0 billion on an operating basis, up $0.5 billion on both ends of its previous outlook range. We plan to raise our 2021 cash flow estimate.

By segment in the quarter, CVS faced a tough comparable in medical insurance and an easy comparable in retail. In medical insurance, revenue rose 11% year over year as Medicare-related businesses grew. However, as medical utilization trends bounced back from the trough in the second quarter of 2020, that segment's adjusted operating income fell 53% year over year. The retail segment helped more than offset that weakness with 14% top-line growth and 94% adjusted operating income growth off an easy comparable and COVID-19 vaccination activity, although the latter may not repeat in future periods. Also, the PBM grew 10% on the top line and 32% on an adjusted operating income basis on new client wins on inflation controls and growth in its relatively high-margin specialty pharmacy business.

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The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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About the Author

Julie Utterback, CFA

Senior Equity Analyst
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Julie Utterback, CFA, is a senior equity analyst, AM Healthcare, for Morningstar*. She focuses on medical technology and service companies. She covers managed care organizations including UnitedHealth, service providers like HCA, medical suppliers such as Baxter, and life sciences companies like Danaher. She is also the chairperson of the equity research team’s capital allocation methodology.

Before joining Morningstar in 2005, Utterback was an equity analyst at State Farm Insurance for several years. Utterback joined Morningstar in 2005 as an equity analyst in the healthcare industry, and initially she primarily covered medical technology companies, including orthopedic device, medical equipment, and cardiac device firms. In 2010, she joined Morningstar's credit research team, initiating coverage of the entire healthcare industry and generally helping the organization expand and maintain its credit coverage across many industries. She held that senior credit analyst role until April 2019, when she returned to the equity team to cover medical technology and service companies.

Utterback holds a bachelor's degree in finance from the University of Illinois Urbana-Champaign’s Gies College of Business. She also holds the Chartered Financial Analyst® designation.

* Morningstar Research Services LLC (“Morningstar”) is a wholly owned subsidiary of Morningstar, Inc

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