Thursday, November 4, 2021

CVS Health’s Stock Spikes After Profit Beat


News shaping
the markets today


What’s happening: Shares of CVS Health Corp rose on Wednesday, after the company posted stronger-than-expected results for its third quarter.

What happened: CVS Health’s quarterly results were driven by a significant surge in sales at the company’s retail and pharmacy units.

The pharmacy chain raised its profit forecast for the full year, with medical costs at its health insurance unit stabilising.

How were the results: The Woonsocket, Rhode Island-based company reported growth in sales and earnings for the third quarter, with both metrics topping market estimates.

  • Sales grew 10% year-over-year to $73.79 billion, exceeding the consensus estimates of $70.49 billion.
  • Adjusted earnings rose 18.7% to $1.97 per share, beating market views of $1.78 per share.

Why it matters: Medical costs for health insurers have been fluctuating since the outburst of the covid-19 pandemic. CVS Health’s bottom-line was also impacted by rising cost of care in its Aetna insurance unit amid the resurgence in covid-19 cases.

On the other hand, the surge in infections resulted in increased demand for vaccines and covid-19 tests during the quarter, providing a boost to the company’s retail unit. Revenues from its healthcare benefits segment rose 9.5% to $20.48 billion in the third quarter, while the pharmacy benefits management unit generated revenues of $39.05 billion, up 9.3% year-over-year. Retail sales grew 10% to $25 billion.

CVS administered over 8 million covid-19 tests and more than 11 million vaccines nationwide during the quarter. Prescriptions filled rose 8.0% from a year ago, boosted by covid-19 vaccinations. The company’s medical benefit ratio rose to 85.8% with an increase in covid-19 treatment and testing costs following the spread of Delta variant.

The company also announced that the covid-19 vaccine developed by Pfizer and BioNTech for children between 5 and 11 years will be available from November 7.

Management raised their earnings guidance for fiscal 2021 from between $7.70 and $7.80 per share to a range of $7.90 to $8.00 per share. CVS also boosted its outlook for cash flow from operations for the year to a range of $13.0 billion to $13.5 billion, compared to its prior forecast of between $12.5 billion and $13.0 billion.

How shares responded: Shares of CVS climbed 5.7% to close at $96.34 on Wednesday, after the release of quarterly results. The stock has added more than 37% year to date.

What to watch: Investors will continue to monitor covid-19 cases, as a rise in infections could provide another boost to the company’s retail unit.

The Markets Today


European stocks will be in focus today ahead of a basket of economic reports from the common bloc.

Context: European markets closed mostly higher on Wednesday, as investors waited for news from the US Federal Reserve’s meeting.

Details: Investors in Europe made calculated moves as the US central bank concluded its two-day policy meeting late Wednesday. The Fed announced plans to keep interest rates unchanged after the closing of European markets. The central bank also announced plans to begin reducing the pace of its monthly asset purchases.

Meanwhile, ECB President Christine Lagarde said the central bank is "very unlikely" to hike interest rates next year with inflation remaining too low.

Investor sentiment was also supported by the strong earnings season. Several companies, including BMW, Lufthansa, Next, and Smurfit Kappa, released quarterly earnings on Wednesday.

On the economic data front, Eurozone’s unemployment rate eased to 7.4% in September, from 7.5% in the previous month, and hit the lowest level since April 2020.

The pan-European Stoxx 600 index rose 0.4% to close at 481.22 on Wednesday, with miners adding 1%. Oil and gas stocks declined 3%. TeamViewer was the top performer on the index, adding around 11% after the German software company reported its third-quarter results.

London’s FTSE 100 fell 0.36% on Wednesday, recording losses for the second straight session ahead of the Bank of England's monetary policy meeting. France’s CAC 50 rose 0.34%, while Germany’s DAX 40 gained 0.03% on Wednesday.

What to watch: Traders await the release of the Eurozone’s services PMI, composite PMI and producer prices. The IHS Markit services PMI is expected to decline to 54.7 in October, from 56.4 a month ago, while the composite PMI is projected to decline to 54.3 in October, from 56.2 in the prior month. Analysts project producer prices rising 2.2% from a month ago in September, following a 1.1% rise in August.

Other Markets: US indices closed higher on Wednesday, with the Dow Jones index, S&P 500 and Nasdaq 100 up by 0.29%, 0.65% and 1.08%, respectively.

Support & Resistances
for Today


market snapshot


Futures at 0400 (GMT)

What else to watch today


Germany’s factory orders, new car registrations, services PMI and composite PMI, Spain’s services PMI and composite PMI, Italy’s services PMI and composite PMI, France’s services PMI and composite PMI, UK’s new car registrations, construction PMI and Bank of England’s interest rate decision, Turkey’s foreign exchange reserves, America’s Challenger job cuts, balance of trade, unit labour costs, nonfarm labour productivity, initial jobless claims, exports, imports, and natural gas stocks change, Brazil’s industrial production, services PMI and composite PMI, as well as Canada’s balance of trade, exports and imports.