CVS Health Corporation (NYSE: CVS) announced fourth quarter and full-year 2024 operating results on February 12, 2025. Additionally, the corporation released an adjusted EPS guidance range for the full year 2025. The estimated $5.75 to $6.00 per share aligns with Wall Street’s expectations. The question is – sell or keep the troubled retail drugstore chain?
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Q4 Highlights
Here’s what CVS reported for the Q4 of 2024, compared with reported amounts for Q4 of 2023:
- Total revenues increased to $97.7 billion, up 4.16% compared to Q4 of 2023.
- GAAP EPS of $1.30 and adjusted EPS of $1.19. GAAP EPS for Q4 of 2023 was $1.58. And adjusted EPS for Q4 of 2023 was $2.12. $838 million returned to stockholders via quarterly dividend.
- Cash flow from operations $1.9B benefited from early receipt of cash mostly from Pharmacy Services business.
- Significantly drop of Adjusted Operating Income $2.73B, compared to $4.23B reported for Q4 of 2023.
2024 Full-year Highlights
- Total revenues increased to $372.8B, up 4.2% compared to prior year.
- Adjusted Operating Income $11.98B.
- GAAP diluted EPS of $3.66 and Adjusted EPS of $5.42.
- Generated cash flow from operations of $9.1 billion.
2025 Expectations
CVS Health Corporation reported successfully completion of their 3-year store closure plan, and in 2025 they will progress towards further business optimization. Here is full-year 2025 consolidated guidance shared in their earnings conference call:
- Total Revenues at least $385.9 vs. $372.8B reported for 2024.
- Adjusted Operating Income $12.95 to $13.40, compared with $11.98B in 2024.
- GAAP EPS between $4.58 to $4.83. For 2024 reported EPS $3.66.
- Adjusted EPS $5.75 to $6.00. In 2024 Adjusted EPS $5.42.
- Cash Flow from Operations around $6.5B, compared to $9.1B Cash Flow from Operations reported in 2024.
Health Care Benefits Segment
Total revenues increased 23.6% to $33B for the Q4 of 2024, compared to the prior year. primarily driven by growth in the Medicare and individual exchange product lines.
For the Q4 Health Care Benefits segment reported an adjusted operating loss of $439 million, contrasting with an adjusted operating income of $676 million from the previous year. This shift was mainly attributed to higher MBR. These declines were somewhat offset by the early recognition of expected losses, which were recorded in the previous quarter as a premium deficiency reserve, and a rise in net investment income.
For the year ending December 31, 2024, the Health Care Benefits segment reported an adjusted operating income of $307 million, down from $5,577 million the year before. This decline was largely influenced by higher utilization, adverse effects related to the Company’s Medicare Advantage star ratings for the 2024 payment year, and increased acuity in Medicaid. These decreases were partly offset by a rise in net investment income and improved fixed cost leverage due to growth in membership.
As of December 31, 2024, medical membership stood at 27.1 million, which remained stable compared to September 30, 2024. This reflects a growth of 1.4 million members compared to December 31, 2023, driven by increases in Medicare and other product lines.
Health Care Benefits guidance for 2025 looks healthy with expectation of at least $132.1B total revenues, compared with reported $130.7B reported for 2024.
There is a significant jump in the expectations for Adjusted Operating Income ranging between $1.50 to $1.95, compared with reported Adjusted Operating Income $0.31 reported for 2024. This estimate is based on a thoughtful assessment of expense patterns, especially in light of the fourth quarter’s ongoing upward trend.
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CVS Business Highlights
Mid-October 2024 David Joyner stepped up as a CEO of the drugstore as part of the plan to solve the struggle for higher profits and to improve the stock performance of the company.
Over the past couple of years more Medicare Advantage patients return to hospitals for operations they put off during the pandemic. This is one of the reasons why medical expenditures have increased for CVS and other insurers.
Fourth quarter adjusted operating loss of $439 million in Health Care Benefits was lower than the prior year quarter, primarily driven by a higher MBR.
On the other side Aetna had a good season reporting a successful two-year implementation of North Carolina’s public employee benefit program, adding around 600k new members to the company.
Legislation Uncertainty
In December, CVS found itself at the heart of a political shake as Congress came close to passing laws aimed at establishing various requirements for pharmacy benefit managers (PBMs) that involves CVS Caremark. Bipartisan proposals suggested drastic measures with respect to services provided to health insurance plans.
However, aggressive reform of PBMs may currently be on hold, as other areas within healthcare, like Medicaid, are faced with potential budget reductions.
On the other side, Republicans are largely viewed as advocates for Medicare Advantage, which is central to CVS’s health benefits division.
What To Expect In 2025 For CVS Health?
CVS Health has outperformed the market thus far this year. Although the company reported strong earnings for Q4 and CVS shares were up over 14% shortly after the market opened Wednesday, investors may wonder what to expect for the stock in 2025.
There are no straightforward answers to this important question, but one reliable indicator that can help you is the company’s earnings guidance. This should include not only the current earnings expectations but also how these expectations have been adjusted recently.
Research indicates a strong connection between short-term stock performance and trends in earnings estimate revisions. Investors can track stock performance independently or may use well established tools like Chaikin’s Power Gauge.
Investors should also consider that the outlook for the whole industry can significantly influence the stock’s performance. Considering major legislation changes and expected.
