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Earnings preview: CVS Health has the right prescription for growth in Q2

Pharmacy healthcare provider CVS Health Corp. (NYSE: CVS) had a positive start to 2019 after a relatively mediocre performance last year, amid pricing pressures. While the recovery has gathered momentum since them, the government’s plan to introduce changes to the healthcare delivery system might not bode well for the company.

CVS Health will be publishing its second-quarter results Wednesday before the opening bell. The consensus estimate is for earnings of $1.69 per share, which is in line with the profit recorded a year earlier. The top-line is seen increasing about 34% to $62.65 billion. The market’s mood has been positive since the stronger-than-expected results and the trend is expected to continue this time.  

CVS Health Corporation (NYSE: CVS) reported a 43% jump in earnings for the first quarter.

CVS has managed to overcome the pricing issues, leveraging the stable demand for its services and effective execution. The client base is estimated to have expended in the to-be-reported quarter as competitive pricing in pharmacy benefits management boosted demand. Meanwhile, the healthcare segment stands to benefit from the continuing growth in Medicare and Medicaid clients.

Aetna to lead

Like in the previous quarter, the key growth driver will be Aetna, which joined the CVS fold last year. After surprising the market with a sharp increase in its Medicare business, Aetna will likely do the same in the June quarter. Moreover, the synergies are expected to bring down expenses from the last year’s levels.

Related: CVS Health Q1 2019 Earnings Conference Call Transcript

Value-added services like home delivery, multi-dose packaging, and the Saving Patients Money program continue to attract customers to CVS stores. Also, an increasing number of patients find clinical adherence programs useful.

Q1 Performance

In the first quarter, positive revenue performance by both the business segments, aided by higher comparable-store sales, pushed up the top-line by 35% to $61.7 billion. The uptick mainly reflects solid contributions from Aetna. As a result, adjusted profit moved up 9% annually to $1.62 per share.

Also see: Can Walgreens and CVS Health resist the online invasion?

Earlier this year, rival pharmacy retailer Walgreens Boots Alliance (WBA) reported $34.6 billion in sales for its third quarter, which was broadly unchanged from the previous year’s levels. At $1.47 per share, adjusted earnings were down 4% year-over-year.

CVS Health’s stock plunged to a six-year low in May, after falling continuously since the beginning of the year. In the past twelve months, the shares lost about 19%.

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