What To Expect From CVS Health’s Q1?

CVS Health (NYSE: CVS) is scheduled to report its Q1 2021 results on Tuesday, May 4. We expect CVS Health to likely post revenue and earnings below the street expectations, as a rebound in total procedure volume may result in higher benefit costs, while pricing pressure in the pharmacy management business is likely to impact the overall growth. That said, continued growth in prescription volume and increased Covid-19 testing as well as vaccination is expected to more than offset any decline owing to the factors mentioned above.

Despite our forecast indicating revenues and earnings below the street estimates, we believe that CVS Health’s valuation is about $88 per share, which is roughly 16% above the current market price of $76. See our interactive dashboard analysis on CVS Health’s Pre-Earnings has additional details.

(1) Revenues expected to be slightly below the consensus estimates

Trefis estimates CVS Health’s Q1 2021 net revenues to be around $68.1 billion, slightly below the $68.4 billion consensus estimate. A deferment in elective surgeries amid the spread of Covid-19 impacted the overall prescription volume growth in the first half of 2020, but that trend has reversed over the recent quarters, and prescription volume is expected to trend higher going forward.

Now that over 40% of the U.S. population have received at least one dose of the Covid-19 vaccine, the overall economic activities are likely to move a step closer to normalcy, boding well for CVS Health’s business. The company’s Health Care Benefits segment, which provides health insurance, has been expanding its reach to 23.4 million people as of 2020, compared to 22.1 million in 2018. An overall increase in Medicaid enrollments, especially during the Covid-19 crisis, has helped the company expand its membership base, and this trend is expected to continue in the near term. CVS Health’s Q4 2020 sales were up 4% to $69.6 billion, as a 2% decline in the Pharmacy Services segment was more than offset by gains in both Retail as well as Health Care Benefits segments. Our dashboard on CVS Health’s Revenues offers more details on the company’s segments.

2) EPS also likely to be below the consensus estimates

CVS Health’s Q1 2021 adjusted earnings per share (EPS) is expected to be $1.65 per Trefis analysis, compared to consensus estimate of $1.71. CVS Health’s adjusted net income of $1.7 billion in Q4 2020 reflected a 25% drop from its $2.3 billion figure in the prior-year quarter. This can be attributed to increased operating costs during the pandemic. For the full-year 2021, we expect the adjusted EPS to be $7.50, reflecting no change from the 2020 figure.

(3) Stock price estimate 16% higher than the current market price

CVS stock has underperformed the broader markets over the last one year, with the company’s share price rising just 27%, compared to a 47% rise for S&P500. This can largely be attributed to investor concerns over Amazon’s entry into online pharmacy, which is likely to eat market share from CVS. The investors concerns are largely reflected in low P/E multiple the stock currently trades at, compared to some of the other names in the healthcare sector. Going by our CVS Health’s Valuation, with an EPS estimate of around $7.49 and a P/E multiple of around 12x in 2021, this translates into a price of $88, which is 16% above the current market price of $76.

Note: P/E Multiples are based on Share Price at the end of the year and reported (or expected) Earnings for the full year