Can Pharmacy Services Drive CVS Health's (CVS) Q2 Earnings?

CVS Health Corporation’s (NYSE:CVS) Pharmacy Services business has been gaining momentum on the back of higher specialty pharmacy and pharmacy network claim volumes besides brand inflation.

We expect this strength to get reflected in second-quarter 2019 results, which are scheduled for release on Aug 7, before market open.

Click here to know how the company is likely to perform in the quarter to be reported.

Pharmacy Services Segment in Focus

Consistent with the prior quarters, net new business and the continued adoption of Maintenance Choice programs are expected to drive CVS’ PBM business in the second quarter. The company’s new guaranteed net cost pricing model is drawing attention from clients and benefit consultants, which could lead to client uptakes in the second quarter.

In terms of 2020 PBM selling season, the company is expected to report a strong retention rate in the second quarter. In the last reported quarter, PBM retention rate was in the mid-90% excluding the impact of the Centene (NYSE:CNC) deal.

Caremark legacy business too is expected to deliver a strong quarter, banking on the company’s solid execution of its formulary and cost-management tools. In terms of unit cost, the company is successful in driving down the average out-of-pocket costs for plan members for the sixth consecutive year, retaining patients’ adherence and improving their overall health. This trend should continue in the second quarter as well.

Last but not the least, the company earlier noted that post the Aetna (NYSE:AET) integration, its Pharmacy Services segment's current-year figures will be affected by two important changes. First, the company’s Individual SilverScript PDP has been shifted from the PBM segment to its newly-formed Health Care Benefits (HCB) one. Second, the company has already consolidated the pharmacy operations of Aetna into its PBM. We therefore expect these factors to influence the yet-to-be-reported quarter’s top-line results.

Zacks Ranks and Key Picks

CVs Health currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Acer Therapeutics Inc. (NASDAQ:ACER) has an Earnings ESP of +10.10% and is Zacks #3 Ranked.

Anavex Life Sciences Corp. (NASDAQ:AVXL) has an Earnings ESP of +4.00% and a Zacks Rank #2.

BeiGene, Ltd. (NASDAQ:BGNE) has an Earnings ESP of +8.55% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

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