CVS Health Corporation CVS is scheduled to report its second-quarter 2015 results before the opening bell on Aug 4. Last quarter, the company had posted a positive earnings surprise of 5.56% while the four-quarter trailing average beat is pegged at 2.29%. Let’s see how things are shaping up prior to this announcement.
Factors at Play
Over the quarters, the Pharmacy Services segment at CVS Health gained from growth in specialty pharmacy and favorable purchasing economics while the Retail Pharmacy segment has benefited from increased sales and an improved margin rate, partially offset by incremental store operating costs associated with operating more number of stores.
According to CVS, the timing of breakout for generics, tobacco exits and investments in PBM’s welcome seasons, are factors that are likely to aid the company’s performance through 2015. We expect the benefits to start getting reflected in the second quarter itself.
We note that, the company’s beauty elevation program is being launched on a large scale in several of its stores. This will further enhance its front store clustering efforts including a number of store resets. Additionally, the ExtraCare Rewards Program is expected to be an important driver of profitable front store growth.
For the second quarter of 2015, CVS expects to report adjusted EPS in the range of $1.17−$1.20. The current Zacks Consensus Estimate of $1.25 exceeds the guided range.
Within the retail segment, the company projects revenues to increase in the range of 1.5% to 2% year over year. Adjusted script comps are expected to increase in the range of 4.25% to 5.25%, while total same-store sales are estimated in the band of down 1.25% to up 0.25%.
For the second quarter, CVS expects the tobacco exit to have approximately 800 basis points of negative impact on front store comps.
Within PBM, second quarter revenue growth is projected between 11.25% and 12.5% driven by continued strong growth in specialty and volumes. While the company expects retail operating profit to decrease by 2% to 4%, PBM operating profit is expected to increase by 6% to 9% in the upcoming quarterly results.
Earnings Whispers
Our proven model does not conclusively show that CVS Health is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is, however, not the case here as you will see below.
Zacks ESP: CVS Health’s earnings ESP is -0.83%, as the Most Accurate Estimate is pegged at $1.19 while the Zacks Consensus Estimate stand at $1.20.
Zacks Rank: CVS Caremark has a Zacks Rank #3 which increases the predictive power of ESP. However, a negative ESP makes surprise prediction difficult.
Note that we caution against stocks with a Zacks Ranks #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks that Warrant a Look
Here are three companies you may want to consider as our model shows these have the right combination of elements to post an earnings beat this quarter:
HCA Holdings, Inc. HCA has an earnings ESP of +2.24% and a Zacks Rank #2. HCA Holdings is slated to report its second-quarter 2015 earnings on Aug 5.
Myriad Genetics Inc. MYGN has an earnings ESP of +2.44% and a Zacks Rank #3. Myriad Genetics is scheduled to report its first-quarter fiscal 2016 earnings on Aug 11.
Mylan N.V. MYL has an earnings ESP of +1.15% and a Zacks Rank #3. Mylan is expected to report second-quarter 2015 earnings on Aug 6.
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