Should you buy CVS Health (CVS) stock before Q4 earnings?

CVS Health Corporation (NYSE: CVS), the largest retail pharmacy chain, is on a mission to make quality healthcare available to everyone. A few months ago, the company acquired health risk assessment firm Signify Health in a multi-billion-dollar deal, continuing the initiatives to grow its portfolio.

Though CVS’ stock stayed on the growth path after the initial dip that followed the COVID-19 outbreak around three years ago, it experienced fluctuations last year and declined in the early weeks of 2023. With the stock trading below its long-term average currently, the valuation seems to be fair enough to take the plunge. Going by experts’ bullish forecast, the stock is probably on its way to shifting to high-growth mode and setting a new record before year-end.  

Buy It?

The company offers a decent dividend yield of about 2.8%, after resuming dividend hikes last year. Its continued focus on improving healthcare outcomes and reducing costs for customers gives the business better acceptance, compared to rival pharmacy chain Walgreens Boots Alliance, Inc.  (NASDAQ: WBA).

CVS Health Corporation Q3 2022 Earnings Call Transcript

Over the years, CVS has expanded into new areas, further diversifying the business – ventured into healthcare insurance with the acquisition of Aetna and broadened pharmacy-benefits management division CVS Caremark. Those efforts have helped the company maintain its leadership position and stay unaffected by market challenges, to a large extent.

Financials

All three operating segments performed well in the most recent quarter, led by the pharmacy services segment which includes the pharmacy benefits management unit. With same-store sales growth hovering near 10%, net revenue grew in double digits to $81.2 billion in the third quarter of 2022. That translated into a 6% growth in earnings per share to $2.09, on an adjusted basis. CVS executives are of the view that full-year earnings would come in slightly above last year’s levels.

From CVS Health’s Q3 2022 earnings call:

“Our digitally led omnichannel health approach prioritizes experiences that matter most for consumers. This includes advancing our digital tools for a seamless and convenient experience, leading to higher engagement and satisfaction. For example, we recently launched a new functionality that drives more choice and convenience for patients filling prescriptions. Patients can expedite urgent prescriptions have visibility into out-of-pocket costs and track their order status, all before even coming into our pharmacy.”

Q4 Report on Tap

While maintaining solid profitability over the past many years, the company achieved something that others could not do – generated stronger earnings than widely expected in every quarter since 2016. In a sign that growth decelerated in the final months of fiscal 2022, market watchers estimate that revenues remained flat in the fourth quarter. They also see a 3% decrease in Q4 adjusted earnings per share to $1.92. The report is slated for release on February 8, early morning.

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After making a sluggish start to the year, CVS gathered momentum last week. However, the stock traded lower on Monday. It has lost about 9% in the past six months.