CVS Tries to Ease Merger Worries -- WSJ
June 05 2019 - 3:02AM
Dow Jones News
Company forecasts return to profit growth, with hopes of cost
cuts from Aetna tie-up
By Sharon Terlep
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (June 5, 2019).
CVS Health Corp., under pressure to reassure skeptical investors
after its merger with Aetna Inc., said it would return to profit
growth next year and detailed a vision for a health-care behemoth
that drives down medical costs.
After warning earlier this year that 2019 profits would decline,
CVS gave longer-term projections for the first time since the Aetna
merger. The company said Tuesday it expects adjusted earnings per
share of at least $7 in 2020, growing by a mid-single-digit
percentage in 2021 and larger increases the years following.
Wall Street analysts had predicted adjusted earnings per share
of $7.22 for next year and growth of 8% to $7.80 for 2021,
according to a poll by Refinitiv. The adjusted earnings exclude
factors unrelated to CVS operations, including costs and income
related to asset sales and acquisitions.
"The breadth and depth of consumer data we have access to is
unmatched," CVS Chief Executive Larry Merlo said on Tuesday,
kicking off a meeting with investors and financial analysts to
review the company's forecasts and strategy. "We are going to be
the driving force for change in our health-care system."
Also Tuesday, the company's lawyers were in a federal court in
an unusual proceeding to defend their $70 billion merger, which
closed in November.
CVS shares, which have tumbled this year, rose 2.3% Tuesday to
$54.62.
CVS is under pressure to find new ways to counter slowing
revenue from prescription drugs, which drive the bulk of the
pharmacy chain's sales. The company and its rivals also face
government scrutiny of the traditional pharmacy-benefits business
model, particularly rebates paid by drugmakers. Health insurers'
shares have also been dragged down by some Democrats' support for
universal government health coverage.
In February, CVS gave a downbeat earnings projection for 2019,
pushing its shares down sharply and leading investors to press for
more detail about the company's growth plans. The shares have
stagnated despite stronger-than-expected first-quarter results, and
CVS had promised a fuller picture of its future in the Tuesday
session.
On Tuesday, finance chief Eva Boratto predicted challenges in
the company's pharmacy-benefits business due to pricing pressures
and a decrease in new business. She said CVS expects better
performance from its health-insurance and pharmacy units, where
both revenue and adjusted operating income are projected to
increase.
CVS said by the end of 2021 it plans to have 1,500 new health
hub stores designed to offer a broader range of services, many
aimed at those with chronic illnesses. The company, with about
9,800 stores, previously said it aimed to convert roughly 1,000
locations into hubs and hadn't given a timeline.
A trio of health hubs in Houston has proved successful, Kevin
Hourican, president of CVS Pharmacy, said in an interview. He
declined to say whether the new model improved store profitability
but said the stores posted increased traffic and higher demand for
prescriptions and medical services, and on average sold
higher-margin items.
Rival Walgreens Boots Alliance Inc. is also adding similar
services to hundreds of U.S. drugstores. Ultimately CVS hopes its
health-hub model will lower costs for chronic-disease sufferers,
which will save the company money through Aetna while creating a
service other insurers will pay for.
CVS plans to fund the health-hub expansion by cutting back on
traditional store refurbishments, Mr. Hourican said. It plans this
year to open additional hubs in Houston, the Philadelphia area,
Atlanta and Tampa, Fla.
"This is about a long-term strategic plan with no sugar cubes
being offered up to fast-money traders," said Renny Ponvert, CEO of
research firm Management CV Inc. "The risk is the fact that it's
never been done before."
The company said it still expects the merger with Aetna to
create about $300 million to $350 million of cost savings and other
benefits in 2019 and about $800 million of so-called synergies in
2020.
For 2019, the company kept the targets it set in February, when
it predicted adjusted earnings of $6.75 to $6.90 per share and
consolidated revenue of $251.2 billion to $254.4 billion.
--Anna Wilde Mathews contributed to this article.
Write to Sharon Terlep at sharon.terlep@wsj.com
(END) Dow Jones Newswires
June 05, 2019 02:47 ET (06:47 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
CVS Health (NYSE:CVS)
Historical Stock Chart
From Aug 2024 to Sep 2024
CVS Health (NYSE:CVS)
Historical Stock Chart
From Sep 2023 to Sep 2024