CVS Health tops 2Q forecasts; grows cautious about next year

Vaccines and a return to normal care levels helped push CVS Health past Wall Street’s second-quarter expectations, but the resurging COVID-19 pandemic is clouding the health care giant’s 2022 expectations.

Chief Financial Officer Shawn Guertin told analysts on Wednesday that the company always aims for double-digit growth in adjusted earnings per share. But he wouldn’t repeat that goal for next year, given rising COVID-19 cases and falling vaccination rates.

CVS Health shares fell deeper than the broader market in late-morning trading.

That was driven by the 2022 comments and the company’s relatively conservative forecast hike for 2021, which it also announced Wednesday, Mizuho Securities USA analyst Ann Hynes said in a research note.

A more contagious variant of the virus that causes COVID-19 has led to soaring case counts over the past few weeks. Fewer people also are getting vaccines after an initial rush earlier this year when they first became available to the general public.

Both of those variables could play a big role in CVS Health’s future performance. Vaccines and virus testing bring more revenue into the company’s drugstores, while a rise in costs to treat COVID-19 patients or a pullback in other care could affect the company’s insurance business.

Guertin didn’t offer a specific forecast for 2022 — companies normally don’t this early — but he did say his lower expectations have nothing to do with CVS Health’s core business performance.

In the second quarter, CVS Health earned $2.78 billion, with adjusted earnings totaling $2.42 per share.

That topped the average analyst expectation of $2.07 per share, according to FactSet.

Total revenue jumped 11% to $72.62 billion.

CVS Health operates one of the nation’s largest drugstore chains with nearly 10,000 retail locations. It also runs prescription drug plans for big clients like insurers and employers through a large pharmacy benefit management business and sells health insurance through its Aetna arm.

CVS Health administered nearly 17 million vaccines in the quarter, which helped revenue from its retail business climb more than 14%.

Company executives said vaccination rates had been slowing from their April peak, although they were starting to see a recent uptick.

A return to normal care levels led to more prescriptions for the company’s drugstore and pharmacy benefits management business, but it also added costs to the company’s health insurance side.

CVS Health said it now expects 2021 adjusted earnings to range between $7.70 and $7.80 per share after forecasting $7.56 to $7.68 per share in May.

That’s a 2% hike when comparing the midpoint of both ranges. Hynes noted, in contrast, that the company beat second-quarter expectations by 17%.

CVS Health also announced some additional costs Wednesday through an employee wage hike.

The company said it was raising its minimum pay for all employees earning hourly wages up to at least $15 an hour by next July. Employees currently make a minimum of $11 an hour, but that will climb to $13 next month.

CVS Health CEO Karen Lynch said the company needs the pay hike to remain competitive in a tight retail labor market.

Most of the company’s hourly workers already make more than $15, but the plan will still add $125 million in labor costs in the final four months of the year.

Company shares fell nearly 2% to $82.46 in late-morning trading while broader indexes were down less than 1%.

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