Shares of CVS Health Corp (CVS) were under pressure in early Monday trading following the company’s preannouncement of an earnings miss for the third quarter. This news came amidst a period of generally strong earnings reports, making the CVS miss all the more surprising.
Several analysts chimed in to provide their insights on the situation. Piper Sandler analyst Jessica Tassan maintained her Overweight rating and $72 price target for CVS Health, despite the company’s recent struggles. She attributed the earnings miss to a significant medical loss ratio (MLR) and withdrawal of full-year guidance. Tassan explained that CVS Health recorded $1.1 billion in premium deficiency reserves primarily linked to Medicare and Individual Exchange businesses within the health care benefits segment.
While acknowledging that rising rates, risk adjustment, and the Inflation Reduction Act are impacting Medicare Advantage, Tassan pointed out that CVS Health also faces some “self-induced” issues in its Healthcare Benefits (HCB) segment. However, she anticipates these issues to begin resolving in 2025. She also noted that David Joyner, who recently took over as CEO, could potentially steer the company toward a multi-year earnings recovery.
Truist Securities analyst David MacDonald echoed the sentiment, reiterating his Buy rating and $76 price target for CVS Health. He acknowledged the preannounced adjusted earnings of $1.05-$1.10 per share for the third quarter, falling significantly short of the consensus estimate of $1.69 per share. MacDonald attributed the shortfall to a $1.1 billion charge for premium deficiency reserves, translating to a 63-cent per share headwind on adjusted earnings. He further stated that management has revised its 2024 guidance due to continued elevated utilization pressure.
The analyst emphasized that the appointment of industry veteran David Joyner as CEO, replacing Karen Lynch, brings a wealth of experience in pharmacy services. This move could potentially contribute to a positive turnaround for the company.
CVS Health’s stock price reacted negatively to the news, declining by 1.17% to $58.98 at the time of publication on Monday. Investors will be closely watching how the company navigates these challenges and whether Joyner’s leadership can deliver a turnaround in the coming quarters.