What happened
Shares of CVS Health Corporation (CVS 0.10%) jumped 5.2% as of 3:10 p.m. EST on Tuesday. The pharmacy giant reported better-than-expected earnings in its third-quarter results announced before the market opened. CVS Health posted adjusted earnings per share (EPS) of $1.73, up 15.3% year over year and a little higher than the consensus analysts' estimate of $1.71.
So what
CVS Health's earnings beat was more a reflection of Wall Street analysts being too pessimistic than the company delivering impressive results. Most of the year-over-year earnings improvement stemmed from the positive impact of lower income taxes in the third quarter of 2018 thanks to the GOP tax reform bill passed last year.
Image source: CVS Health.
Still, CVS Health's Q3 results were respectable. The company reported modest revenue growth of 2.4%. This growth was led by the retail/long-term care (LTC) segment, with a solid increase in pharmacy same-store sales compared to the prior-year period.
It's also possible that investors are warming up to CVS Health's planned acquisition of Aetna (AET +0.00%). When the deal was first announced in 2017, the market didn't react positively. Several concerns were raised about the acquisition, including the added debt CVS took on to fund the transaction, the suspension of dividend hikes, and whether it was really a smart move for the long term.
But the U.S. Department of Justice approved the Aetna buyout in October. CVS Health expects the deal will close before Thanksgiving. The company also thinks that the synergies from the deal will be greater than initially expected. There could now be some grudging acceptance that CVS Health's decision to buy Aetna could be smarter than many thought it was a year ago.
Now what
There are plenty of sports fans who say "wait 'til next year" at the end of a season. That's the mentality that CVS Health investors are likely to have now -- not because 2018 has been bad, but because 2019 is going to be an entirely new ball game with the Aetna acquisition.
CVS Health does have another quarter to report that won't fully include the contribution from Aetna. Clearly, though, the deal will be transformative for CVS at a time when the pharmacy industry as a whole is experiencing some major changes.
