Will CVS Caremark (CVS) Beat Earnings This Quarter? - Analyst Blog

CVS Caremark Corporation CVS is scheduled to report its first-quarter 2014 results before the opening bell on May 2. Last quarter, CVS Caremark posted a positive earnings surprise of 0.90% while the four-quarter trailing average beat is pegged at 3.47%. Let's see how things are shaping up for this announcement.

Factors at Play

CVS Caremark is poised to benefit from a strong selling season, favorable industry dynamics and increasing shareholder value. The company also witnessed robust double-digit growth in Pharmacy Benefit Manager PBM on the back of a strong selling season.

The generic wave in the pharmaceutical industry continues to work in CVS Caremark's favor, as evident in the consistent margin expansion at the company. We are also impressed with CVS' apparently strong guidance for 2014 where adjusted EPS reflects strong year-over-year growth along with the company's optimism about its future.

However, CVS is facing higher costs associated with its Medicare Part D business that might hamper operating profit in the PBM franchise.In addition, the decline in front-end sales was also disappointing in the last reported quarter.

Earnings Whispers?

Our proven model does not conclusively show that CVS Caremark is likely to beat earnings this quarter. It is because a stock needs to have both a positive Earnings ESP (Expected Surprise Prediction) and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here as you will see below.

Zacks ESP: CVS Caremark's earnings ESP is 0.00%, as the Most Accurate estimate and the Zacks Consensus Estimate both stand at $1.05.

Zacks Rank: Although CVS Caremark's Zacks Rank #2 (Buy) increases the predictive power of ESP, when combined with a 0.00% ESP, it makes surprise prediction difficult. We caution against stocks with Zacks Ranks #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing a negative estimate revision momentum.

Other Stocks to Consider

Here are two companies you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:  

Myriad Genetics Inc. MYGN has an earnings ESP of +10.87% and sports a Zacks Rank #1 (Strong Buy). Myriad Genetics will be reporting first-quarter earnings on May 6.

LDR Holding Corp. LDRH has an earnings ESP of +26.32% and holds a Zacks Rank #2 (Buy). LDR Holding will announce its first-quarter 2014 earnings on May 7.

We note that, Align Technology Inc. ALGN, which surpassed our first-quarter 2014 earnings estimate on Apr 23, had an earnings ESP of +13.89% and carried a Zacks Rank #1 (Strong Buy).