To The Moon

$CVS Health(CVS)$

CVS 3rd Quarter 2024 Results reported total revenues of $95.4 billion, a 6.3% increase compared to the prior year, the stock Jump from $55 to $63. However, their GAAP diluted earnings per share (EPS) was $0.07, a significant decrease from $1.75 in the prior year. The adjusted EPS reported was $1.09 vs estimate $1.436 over -24% miss and down from $2.21 in the previous year.

CVS EPS Basic Last 4Q Chart

Company Overview

• Business Segments: CVS operates through three main segments:

  Health Care Benefits: Offers health insurance products and services.

  Health Services: Provides pharmacy benefit management services, including plan design, administration, and specialty pharmacy services.

  Pharmacy & Consumer Wellness: Sells prescription and over-the-counter drugs, beauty products, and personal care items.

• Subsidiaries: CVS owns several well-known brands, including CVS Pharmacy, MinuteClinic, CVS Caremark, Aetna, and Oak Street Health.

• Revenue and Assets: As of 2023, CVS reported $357.8 billion in revenue and $249.7 billion in total assets.

• Community Presence: CVS has a strong community presence with over 9,395 locations across the United States.

CVS Earning Overview

• Factors Affecting Earnings: The decline in earnings was primarily due to premium deficiency reserves of approximately $1.1 billion in the Health Care Benefits segment. These reserves were related to anticipated losses in the Medicare and individual exchange product lines1.

• Year-to-Date Performance: CVS generated $7.2 billion in cash flow from operations year-to-date.

• Segment Performance: The Health Services and Pharmacy & Consumer Wellness segments showed strong performance, while the Health Care Benefits segment faced challenges.

Decline in FCF

CVS Health Corporation's free cash flow (FCF) for 2023 was $10.395 billion, which represents a 22.71% decline from 2022. The company's FCF for the trailing twelve months (TTM) ended June 30, 2024, was $5.273 billion. This decline in FCF indicates some challenges in maintaining cash flow levels compared to previous years.

CVS business challenges

CVS Health Corporation faces several business challenges:

• Health Care Benefits Segment: CVS has experienced significant challenges in its Health Care Benefits segment, including premium deficiency reserves of approximately $1.1 billion due to anticipated losses in Medicare and individual exchange product lines.

• Financial Performance: The company reported a 96% decline in net income for the third quarter of 2024, largely due to restructuring charges and increased claims from its Medicare Advantage coverage.

• Market Competition: CVS faces intense competition in the pharmacy and health services sectors, which can impact its market share and profitability.

• Operational Costs: Rising operational costs, including higher healthcare costs and increased interest expenses, have put pressure on CVS's financial performance.

• Leadership Changes: The company has recently undergone leadership changes, appointing new executives to address ongoing challenges and improve business execution.

• Higher Medical Costs: CVS has experienced higher-than-expected costs in its insurance business, particularly due to increased Medicare utilization and lower Medicare Advantage reimbursement rates.

• Earnings Miss: The company missed earnings estimates, reporting a 96% decline in net income for the third quarter of 2024. Adjusted earnings per share fell short of expectations2.

• Revenue Shortfall: While total revenue rose to $95.4 billion, it was still below analysts' expectations.

• Cost-Cutting Measures: The company has implemented a $2 billion cost-cutting plan, which includes layoffs and other measures to shore up profits.

These factors have contributed to a decline in CVS's stock price and overall financial performance.

Despite these challenges, CVS continues to focus on its integrated healthcare model to deliver lower costs, a simpler experience, and better outcomes for consumers.

Business sentiment

Leadership Changes: The appointment of new executives, including Steve Nelson as the leader of the troubled health insurance wing, Aetna, has been seen as a positive step. Investors are hopeful that these changes will improve business execution1.

Financial Performance: While CVS reported strong sales with total revenues of $95.4 billion for the third quarter of 2024, its earnings per share (EPS) fell significantly due to premium deficiency reserves and restructuring charges.

Market Reaction: Despite the earnings miss, CVS's stock saw a 13% jump following the leadership announcement and the broader market surge on Election Day.

Analyst Ratings: Analysts have given CVS a "Moderate Buy" rating, with a consensus target price of $73.17. Some analysts have raised their price targets, citing the potential for improved operations under new leadership.

Overall, while there are challenges, there is also optimism about CVS's ability to turn things around with its new leadership and integrated healthcare model.

CVS Business Strategy

CVS Health Corporation is making a significant investment push to strengthen its position in the healthcare industry. Here are some key points:

• Growth Equity Fund: CVS launched a growth equity fund last year, which allows it to make larger investments, including up to $100 million in a single deal. This fund focuses on areas like consumer health and care delivery.

• Recent Investments: CVS recently invested $100 million in Carbon Health, a company that operates primary and urgent care clinics. This investment is part of CVS's strategy to pilot new healthcare models in some of its branches.

• Venture Fund: CVS has a main venture fund that invests between $3 million to $10 million in early-stage companies. This fund supports innovation in healthcare services and technology.

• Strategic Focus: The company is focusing on expanding its primary care offerings and exploring new healthcare models, especially in the aftermath of the COVID-19 pandemic.

These investments are part of CVS's broader strategy to enhance its integrated healthcare model and improve patient outcomes.