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Can CVS Health (CVS) Pull a Surprise this Earnings Season?

CVS Health Corporation CVS is scheduled to report second-quarter 2017 results before the opening bell on Aug 8. Last quarter, the company delivered a positive earnings surprise of 6.4%. Its trailing four-quarter average positive earnings surprise was 3.7%. Let’s see how things are shaping up for this announcement.

Factors at Play

CVS Health is optimistic about sustaining a solid year-over-year earnings trend in 2017 on the back of gains to be realized from the Pharmacy Services segment. However, there are several timing factors that have already affected the cadence of profit delivery in the first quarter. Plus, the same is expected to continue through the rest of 2017.

CVS Health Corporation Price and EPS Surprise

 

CVS Health Corporation Price and EPS Surprise | CVS Health Corporation Quote

These factors include introduction and timing of break-open in generics, the timing of profitability in Medicare Part D business, of the benefits from the company’s strategies to drive growth on the front-end and the same of share repurchases along with certain tax benefits among others. Keeping that in mind, on the last earnings call, it projected second-quarter adjusted earnings per share of $1.29-$1.33, reflecting a decline of 2.5% to an increase of 1% year over year.

This apart, the company is worried about its Retail/Long Term Care business, where revenues are expected to be down 2.5-4.25% from the year-ago period in the second quarter due to the restricted network changes. Additionally, the company expects its adjusted script comps to decrease in the range of 0.5-1.5% and the total same-store sales to be down in the 3-4.75% band in the yet-to-be-reported quarter.

However, Easter shift into the second quarter is expected to leave a positive impact on the front-store comp growth of approximately 75 basis points.

We also expect the company to benefit from its acquisition of Target Pharmacy, whose integration has been completed. CVS Health expects script performance to improve year over year, driven by the strength in patient care programs and Maintenance Choice.

Also, it expects PBM revenues to grow 9-10.8%, driven by continued strong growth in volumes and specialty. Consolidated net revenues have projected a 3.25-5% rise during the second quarter. Overall, the company estimates to deliver healthy PBM growth on a successful PBM selling season. Specialty business is expected to record strong growth and SilverScript’s business also hopes to retain its good performance.

Earnings Whispers

Our proven model does not conclusively show that CVS Health is likely to beat estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. But that is not the case here as you will see below.

Zacks ESP: CVS Health’s Earnings ESP is 0.00%, as the Most Accurate estimate and the Zacks Consensus Estimate are $1.31. You can uncover the best stocks to buy or sell before they’re reported with our https://www.zacks.com/premium/esp-buy?adid=zp_article_espfil...">Earnings ESP Filter.  

Zacks Rank: CVS Health has a Zacks Rank #3, which increases the predictive power of ESP. However, the company’s 0.00% ESP makes surprise prediction difficult.

We caution against the Sell-rated stocks (#4 and 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are three companies you may want to consider from the same space, as our proven model shows that they have the right combination of elements to come up with an earnings beat this quarter:  

Arena Pharmaceuticals, Inc. ARNA has an Earnings ESP of +5.88% and a Zacks Rank #2. You can see the complete list of today's Zacks #1 Rank stocks here.

Dextera Surgical Inc. DXTR has an Earnings ESP of +9.09% and a Zacks Rank #2.

Teleflex Incorporated TFX has an Earnings ESP of +0.52% and a Zacks Rank #2.

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CVS Health Corporation (CVS): Free Stock Analysis Report
 
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