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CVS Health Crushes Q2 Earnings Estimates Thanks to COVID-19

By Keith Speights – Aug 5, 2020 at 10:23AM

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The healthcare giant's Q2 revenue growth was held back by the coronavirus outbreak. But its bottom line improved significantly.

CVS Health (CVS 2.18%) benefited from the COVID-19 pandemic in several ways during the first quarter. However, there were questions about whether the coronavirus outbreak would provide only a temporary boost for the company. Those questions have now been answered.

The healthcare giant announced its second-quarter results before the market opened on Wednesday. Here are the highlights from CVS Health's Q2 update.

A pharmacist speaks to a customer at pharmacy counter.

Image source: Getty Images.

By the numbers

CVS Health reported revenue in the second quarter of $65.3 billion, up 3% year over year. This result topped the consensus Wall Street Q2 revenue estimate of $64.23 billion.

The company announced Q2 net income of nearly $3 billion, or $2.26 per share, based on generally accepted accounting principles (GAAP). This represented a big increase from its GAAP earnings of $1.9 billion, or $1.49 per share, reported in the same quarter of 2019. 

CVS recorded adjusted net income of $2.64 per share. This was well above adjusted earnings of $1.89 per share posted in the prior-year period and blew past the average analysts' adjusted earnings estimate of $1.93 per share.

Behind the numbers

Two of CVS Health's business segments faced headwinds related to the COVID-19 pandemic in the second quarter. However, both segments still delivered higher sales than in the prior-year period.

Pharmacy services revenue increased by $47 million -- well under 1% year over year -- to $34.9 billion in the second quarter. Growth was held back by the coronavirus outbreak, as well as client losses previously disclosed by CVS Health and a sustained trend of price compression.

CVS' retail/LTC segment, which includes its retail pharmacy stores and the Omnicare long-term care (LTC) business, generated revenue of $21.7 billion in Q2, up 1% year over year. The COVID-19 pandemic caused front-store sales to fall 4.6%. However, the segment benefited from higher retail pharmacy prescription volume and higher brand-drug prices.

Revenue for the company's healthcare benefits segment, which includes Aetna, jumped 6.1% year over year in Q2 to $18.5 billion. This growth was primarily due to increased membership in the segment's government products plus a positive impact from the reinstatement of the Affordable Care Act Health Insurance Fee (HIF) in 2020.

CVS Health's bottom-line improvement stemmed largely from the impact of the COVID-19 pandemic. Individuals pushed back elective procedures, resulting in much lower medical costs for the company's healthcare benefits segment.

Looking ahead

The company boosted its full-year 2020 guidance after its solid Q2 performance. CVS Health now projects GAAP earnings per share (EPS) will be between $5.59 and $5.72, up from its previous forecast of a range of $5.47 to $5.60. Non-GAAP EPS is expected to be between $7.14 and $7.27, up from previous guidance of $7.04 to $7.17.

There's no question that the biggest variable for the healthcare stock throughout the rest of 2020 and into 2021 is the COVID-19 pandemic. CVS Health's revenue growth should increase as the coronavirus outbreak wanes, but its earnings growth could slow as medical costs increase with patients undergoing elective surgeries that they've delayed. 

Keith Speights has no position in any of the stocks mentioned. The Motley Fool recommends CVS Health. The Motley Fool has a disclosure policy.

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