CVS hedges on 2022 earnings growth target as COVID-19 uncertainty persists

Aug 4 (Reuters) – CVS Health Corp (CVS.N) on Wednesday hedged a bit on its long-term target for double-digit earnings growth for next year, pointing to uncertainty around COVID-19 vaccination and testing demand, as well as medical costs, sending shares down 3%.

“Double-digit adjusted EPS growth remains the benchmark that we’re always trying to achieve,” said Chief Financial Officer Shawn Guertin. “But an awful lot has changed since 2019 when that target was out there and stated.”

CVS said it sees a slight rise in 2021 medical costs as it expects some uptick in COVID-19 vaccination and treatment costs and normalization of demand for non-pandemic healthcare services by the fourth quarter.

Uncertainty caused by a recent surge in COVID-19 cases due to the more contagious Delta variant of the coronavirus led CVS to assume a higher estimate of COVID-related costs in the second half of the year, the company said.

CVS cut its 2021 expectations for the number of COVID-19 vaccine doses it would administer at its clinics to a range of 32 million to 36 million, from its prior view of 29 million to 44 million doses, reflecting a slowdown in vaccinations during the second quarter.

CVS Chief Executive Karen Lynch said in an interview that the company has started seeing an increase in vaccinations, the majority of which are for first doses, as cases have increased due to the Delta variant.

People walk by a CVS Pharmacy store in the Manhattan borough of New York City, New York, U.S., November 30, 2017. REUTERS/Shannon Stapleton

Drugstore chain Walgreens Boots Alliance Inc (WBA.O) also said on Wednesday that vaccinations had picked up, mostly in Southern states. read more

CVS CFO Guertin said that strength in sales of its pharmacy services and health insurance products, lower COVID-related costs and overall cost savings initiatives could help earnings in 2022. But the company will face pressure from pharmaceutical price increases, uncertain revenue from COVID-19 tests and vaccines and moving to a $15 minimum wage across the company, he said.

CVS on Wednesday announced it will raise the minimum wage to $15 an hour from $11 effective July next year.

The wage change, a potential U.S. corporate tax rate rise due to Biden administration policy initiatives and COVID-19 challenges could pose a threat to CVS’ 2022 growth target, Morningstar analyst Julie Utterback said.

After beating Wall Street’s second-quarter adjusted profit estimates by 36 cents, CVS increased its 2021 adjusted earnings forecast to $7.70 to $7.80 per share, from its prior view of $7.56 to $7.68.

Shares rose 3%, or $2.55, to $81.24.Reporting by Amruta Khandekar and Manojna Maddipatla in Bengaluru and Caroline Humer in New York; Editing by Shounak Dasgupta and Bill Berkrot

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Source: https://www.reuters.com/business/healthcare-pharmaceuticals/cvs-health-profit-falls-65-higher-medical-costs-2021-08-04/