If the pros are right about CVS Health Corp. (NYSE:CVS), when the company reports its prior quarter’s results before the bell Tuesday, the drug store chain will be posting record per share earnings. Specifically, analysts collectively expect the company to report a profit of $1.20 per share of CVS stock, up a little more than 7% from the year-ago figure. Just for the record, however, ten of the last eleven earnings reports were “beats” for CVS Health. Odds are good Tuesday’s numbers will be similarly impressive.
As is always the case, though, there’s more to the story than just the CVS Health earnings figures for last quarter.
CVS Health Earnings Outlook
As was noted, the most recent fourth quarter expectations of CVS Health call for a profit of $1.20 per share on $36.06 billion in revenue. That compares favorably to the year-ago profit of $1.12 per share of CVS stock on $32.83 billion worth of sales.
For the full year, that would translate into a bottom line of $4.50 per share for 2014 versus 2013’s earnings of $4 per share of CVS stock. Revenue-wise, CVS Health is on pace to generate $138.32 billion in sales versus 2013’s top line of $126.76 billion.
What Investors Need to Consider Regarding CVS Health
While the numbers are interesting, current and would-be owners of CVS stock have much more to think about in the meantime. There are three important hot topics that may come up during the CVS Health earnings conference call that are worth paying attention to. And, if they aren’t part of the agenda, they’ll (hopefully) be discussed in the Q&A portion of the call.
- Specialty Connect: Previously, specialty treatments for ailments like hepatitis, cancer, and rheumatoid arthritis were lucrative, but not necessarily needed to be handled differently than its other drug business. That’s changing, though, and CVS Health is changing with the times. In the middle of last year — to change with the market — the company created a division called Specialty Connect. This initiative streamlines the process for patients going through CVS Health to get these otherwise-complicated prescriptions filled. Easier and faster processing means more sales of high-end, high-margin drugs.
- Minute Clinic: It’s not exactly new, but it’s newly picking up steam… the company’s efforts to deliver more complete patient care to people when and where they need it, rather than forcing patients to visit doctors at inconvenient times and inconvenient locales. Only about 1000 of the 7800 stores currently offer the Minute Clinic service, but it’s been a big hit where available. CVS Health hopes to have 1500 of these mini-clinics up and running by 2017.
- Red Oak Sourcing: Unlikely alliances are forming within the world of healthcare. Pharmacy benefits managers are exchanging exclusivity for better drug prices with pharmaceuticals makers, but that’s not the only type of partnership being forged. In July of last year, CVS Health teamed up with Cardinal Health Inc. (NYSE:CAH) for the sole purpose of finding sources of generic drugs and negotiating the best possible price for them. The partnership is starting to get traction, and may be the model for other similar partnerships in the future.
Bottom Line for CVS Stock
The odds of an earnings beat are good — that’s not in question. What is on question, however, is whether or not there’s enough upside left in the current price of shares to bother making a short-term bet on CVS stock.
The current trailing P/E of 26.0 and forward-looking P/E of 19.5 is pushing the limits of palatability. Throw in the fact that shares are up 26% just since October, and it’s tough to imagine the market bidding CVS stock any higher… even if the CVS Health earnings report is nothing less than heroic. The bulk of any potential earnings-driven upside is likely already priced into the current share price.
Still, the outlook is encouraging. Analysts expect CVS Health to post a profit of $5.15 per share this year, up 14% from 2014’s likely bottom line of $4.50 per share of CVS stock. Sales are projected to grow 7.6% from a presumed $138.32 billion in 2014 to $178.81 billion next year. However, that may be underestimating the company, which has made a habit of exceeding estimates.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
