Earnings Preview: CVS Health could turn active in Q2

CVS Health (CVS) is expected to post earnings for the second quarter on Wednesday before the market opens. Analysts expect the company to report upbeat results for the quarter. Investors remained concerned on the slowing revenue growth and the exuberant Aetna deal, which is predicted to close by year-end.

In the recently completed first-quarter, CVS Health reported a 4.7% increase in earnings helped by higher prescription volumes within the retail pharmacy business and lower income tax rate. Revenue rose 2.6%. Same-store sales increased 5.8%, and pharmacy same-store sales grew 7.3%, which was driven by the rise in the pharmacy same-store prescription volumes.

For the full year 2018, the company had projected diluted earnings of $5.11-$5.32 per share and adjusted earnings of $6.87-$7.08 per share. At that time, earnings were predicted to be $1.21-$1.26 per share, and adjusted earnings were estimated to be $1.59-$1.64 per share for the second quarter.

Related: Retail pharmacy lifts CVS Health in the first quarter

On average, analysts expected the company to earn $1.61 per share compared to $1.33 per share reported last year. Revenue is forecast to rise 1.40% year-over-year to $46.34 billion. Experts believe tax reform remained a wildcard for the company to achieve continued earnings growth.

Market analysts believe that the quarterly numbers could reflect a healthy balance sheet but a diminishing pharmacy business. For investing in long-term growth initiatives, CVS Health needed to preserve its robust cash flow and income stream. The company is expected to invest $275 million cash back into business this year after the completion of Aetna purchase.

While awaiting the regulatory approval, shareholders of Aetna and CVS Health have approved the proposed merger on March-end. The transaction was expected to close during the second half of 2018.

However, the California Insurance Commissioner Dave Jones has urged the US Justice Department to block the merger as it will significantly reduce competition in the pharmacy benefit manager and Medicare Part D markets. Jones also said the merger would likely lead to higher prices and lower quality.

Shares of CVS Health ended Monday’s regular trading up 0.23% at $65.04 on the NYSE. The stock had fallen more than 16% for the past year and more than 10% for the year-to-date.