CVS Health reported a first-quarter performance that fell short of expectations, leading to a significant drop in its stock price. The company revised its 2024 outlook to an adjusted earnings forecast of at least $7 per share, down from its previous projection of at least $8.30. This reduction was greater than anticipated by analysts, casting doubt on CVS Health’s ability to achieve double-digit growth in earnings per share next year. The company attributed the challenges to rising costs in its Medicare Advantage business, particularly due to increased use of outpatient care and supplemental benefits.
The healthcare giant also cited pressure from inpatient care as a contributing factor to its financial struggles. CEO Karen Lynch mentioned that the company’s visibility into trends during the quarter was impacted by a cyberattack on Change Healthcare, a technology provider for insurance claims processing, which is operated by rival UnitedHealth Group. CVS Health, which also runs a pharmacy benefit management business and covers over 26 million people through its Aetna arm, reported a 48% decline in net income to $1.11 billion in the first quarter, with adjusted earnings of $1.31 per share on total revenue of $88.4 billion.
Analysts had expected earnings of $1.69 per share on revenue of $89.33 billion for the first quarter, indicating a significant miss on both fronts. The company reassured investors that it is not experiencing the same level of pressure from its commercial insurance business, which includes plans sold to employers and on individual insurance exchanges. Despite the challenges faced by CVS Health in its Medicare Advantage business, it remains optimistic about its future prospects and is working to address the rising costs to improve its financial performance moving forward.
Following the disappointing quarterly results and revised outlook, shares of CVS Health plummeted more than 11% in premarket trading, with the stock price falling to $59.82. This decline added to the 14% decrease in the company’s stock price in the first four months of the year, while the Dow Jones industrial average has only seen a slight increase. The market response to CVS Health’s performance reflects investor concerns about the company’s ability to manage its costs effectively and achieve its financial targets. The company will need to implement strategic measures to address the challenges in its Medicare Advantage business and regain investor confidence in its long-term growth prospects.
