What's in the Cards for CVS Health (CVS) in Q2 Earnings?

CVS Health Corporation CVS is scheduled to report second-quarter 2020 results on Aug 5, before the opening bell.

In the last reported quarter, the company delivered earnings surprise of 17.18%. It beat earnings estimates in each of the trailing four quarters, the average being 8.82%.

Let’s take a look at how things have shaped up prior to this announcement.

Factors at Play

Like most of the pharmacy benefits managers (PBM), CVS Health too is bearing the brunt of the coronavirus outbreak, which disrupted the market situation. Given reduced walk-in-clinical appointments and patient visits, the company, which has a huge PBM client base, is expected to have seen a significant decline in its second-quarter revenues.

Per the company’s update (released at the Goldman Sachs Global Healthcare Conference), its Pharmacy Services Total Claim Processed increased a marginal 0.6% in April but declined 2.3% in May on a year-over-year basis. Pharmacy adjusted prescription volume dropped 0.5% in April and 4.2% in May.

CVS Health Corporation Price and EPS Surprise

CVS Health Corporation Price and EPS Surprise

CVS Health Corporation price-eps-surprise | CVS Health Corporation Quote

In May, there was a significant decline in claim processed and prescription compared to April on continued reversal of the pull-forward in scripts and drop in new prescriptions related to lower physician visit.

However, during the second quarter, the company took several PBM business initiatives together with its clients to balance the burgeoning interest in off-label use of certain medicines to treat COVID-19 pneumonia with the ongoing needs of members who use these drugs for chronic conditions. These medicines include hydroxychloroquine, azithromycin, one protease inhibitor and albuterol inhalers, which are approved for treatment of lupus, bacterial infections, HIV, rheumatoid arthritis and asthma.

Further, in this period, CVS Health’s consumer centric digital strategy became even more relevant as people used this technology more while staying at home. So far in this period, the company achieved higher levels of engagement across its digital assets. In this regard, utilization of telemedicine for virtual visits through MinuteClinic was up about 600% in the first quarter from the year-ago period. We expect to see a similar trend when the company reports second-quarter results.

Again, the company’s retail pharmacy services business is likely to have gained amid the pandemic as this segment has put in a lot of effort to meet the crisis. Realizing a huge ramp up in demand for the company’s services, since late March, the company hired a large number of store associates, home delivery drivers, distribution center employees and member/customer service professionals. This should get reflected in the second-quarter top-line numbers.

Further, per the company’s April and May update, its Front Store sales comps seem to have improved. While in April, it declined 10.7% year over year, in May, it declined just 3.2%. According to the company this improvement is due to the gradual increase in store traffic on partial lock-down liberalization in May.

We believe these to have had a positive impact on the company’s second-quarter pharmacy services business numbers.

During the first quarter, the company had talked about providing COVID-19 diagnostic testing and telemedicine visits through the company’s outlets. The company’s Aetna health insurance arm within Health Care Benefits business offered zero co-pay telemedicine visits for any reason to all Individual and Group Medicare Advantage members. CVS Health waived off of cost sharing for all Teladoc virtual visits. We believe these initiatives to have worked in favor of CVS Health and added more Medicare Advantage members for Aetna. Further, on the first-quarter earnings call, the company had noted that through its Aetna Health app, it engaged more households in first quarter than it did in the first three quarters of 2019.This should get reflected in the second-quarter results as well.

The Estimate Picture

The Zacks Consensus Estimate for second-quarter adjusted EPS of $1.91 suggests a 1.1% rise from the year-ago quarter reported figure. The consensus estimate for revenues is currently pegged at $64.28 billion, indicating 1.3% growth from the year-earlier reported number.

What the Quantitative Model Predicts

Per our proven model, a stock with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold), along with a positive Earnings ESP has good chances of beating estimates. This is the case as you can see:

Earnings ESP:  CVS Health has an Earnings ESP of +4.55%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: CVS Health carries a Zacks Rank #3.

Other Stocks Worth a Look

Here are a few other medical stocks worth considering as these also have the right combination of elements to beat on earnings this reporting cycle. You can see the complete list of today’s Zacks #1 Rank stocks here.

Integra LifeSciences Holdings Corporation IART has an Earnings ESP of +20.69% and a Zacks Rank #2.

Exact Sciences Corporation EXAS has an Earnings ESP of +6.69% and a Zacks Rank #2.

IDEXX Laboratories, Inc. IDXX has an Earnings ESP of +18.14% and a Zacks Rank #2.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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