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CVS Earnings: Outlook Trimmed Due to Elevated Medical Utilization In Medicare Advantage Business

We continue to view CVS stock as significantly undervalued.

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What We Thought of CVS Health’s Earnings

CVS Health CVS delivered strong fourth-quarter results, but due to spiking medical utilization in its growing Medicare Advantage, or MA, business, the firm trimmed the 2024 outlook that it had just given at its December investor day. This mild guidance adjustment does not change our $103 fair value estimate, and we continue to view CVS stock as significantly undervalued. Shares appear to be rising, based on the belief that pricing on the firm’s outsize MA membership growth in 2024 will not have a more significant effect on its near-term outlook. That’s in contrast to the much steeper projected consequences at MA-focused Humana HUM in 2024, and that difference is probably related to CVS’ more diversified business mix.

CVS turned in better-than-anticipated fourth-quarter results, including 12% revenue growth. However, increasing medical utilization in the company’s medical insurance business constrained adjusted earnings per share growth to just 4%. Aetna, the medical insurer, delivered 5% membership growth on stellar individual exchange growth, decent MA growth despite its weak star ratings, and a high-single-digit decline in Medicaid as redetermination activities continued. With elevated medical utilization in the period, though, the insurance segment’s adjusted operating profit declined 12% year over year, which was the main reason for the trimming of its outlook for 2024.

For 2024, CVS reduced its expected adjusted EPS to at least $8.30 from at least $8.50 at its December investor day. Positively for 2025 profit growth, CVS’ higher MA star ratings should help plan bonus payments, and CVS expects roughly 9%-10% adjusted EPS growth in 2025, higher than its new goal of at least 6% adjusted EPS growth in the long run.

CVS Health Stock Price

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