Factors Setting Stage For CVS Health's Q1 Earnings

CVS Health CVS is scheduled to report first-quarter 2018 results on May 2, before the opening bell. In the last reported quarter, the company delivered a positive earnings surprise of 1.6%. Its trailing four-quarter average positive earnings surprise is 2.5%.

Let's take a look at how things are shaping up prior to this announcement.

Factors at Play

CVS Health has so far progressed well with its 2018 PBM selling season. Per the last-reported numbers, gross new business wins totaled $6.2 billion while net new business wins grossed $2.4 billion along with an impressive client retention rate. This momentum is expected to continue in the to-be-reported quarter.

Despite tough pricing competition, CVS health is currently gaining on high level of service and execution, competitive pricing along with unique integrated model.

The company is also upbeat about sustaining the solid year-over-year earnings trend in the first quarter of 2018 on gains to be realized from the Pharmacy Services segment. The performance is being driven by higher specialty pharmacy and pharmacy network claim volumes as well as brand inflation.

Management stated that CVS Health's specialty business is its top priority to help the company expand its customer base. CVS Health is poised to capitalize on this opportunity on the back of wide and differentiated offerings, including Specialty Connect.

Further, the company expects drug price inflation, product launches and higher utilization to fuel growth. We expect the Pharmacy Services segment to be a stable growth platform.

CVS Health also projects better-than-expected performance in the to-be-reported quarter primarily on the back ofscript utilization at retail. The company has projected a 1.5-3.25% rise in consolidated net revenues for the first quarter.

Further, a strong flu season has led to the improved outlook. Overall, for the first quarter of 2018, the company expects to register adjusted operating profit growth in the range of 0.5% to 4.5%.

Although CVS Health's Retail/LTC business registered revenue growth after several quarters of a slump in the last reported quarter, there are multiple factors raising concerns. Firstly, the year-over-year growth was just a marginal 0.3%.

Further, continued reimbursement pressure, increasing generic dispensing rate andrecent generic drug introductions have been affecting the business. This apart, marketplace changes that kept CVS Pharmacy from participating in certain networks had a 320-basis point negative impact on same-store prescription volumes in the previously reported quarter.

However, CVS Health has been striving to return to growth in the Retail/LTC business. Management claims that the company is focused on working with all payers to drive volumes and capture market share. CVS Health is also poised to gain from programs such as Health Tag and ExtraCare Health Card.

The company also expects to witness revenue growth of 4% to 5.5% and operating profit growth in the low to mid-single digits range, within the Retail/LTC business

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