CVS Falls as 2016 Guidance Disappoints, Even With Strong Quarter

  • Company forecasts $5.68-5.88 a share; analysts expected $5.98
  • Guidance matches five-year growth targets, company says

CVS Health Corp., the biggest provider of prescription drugs in the U.S., fell in early trading as 2016 guidance came in below consensus expectations.

The Woonsocket, Rhode Island-based company expects adjusted earnings to increase 10 to 14 percent, to a range of $5.68-5.88 a share next year. Analysts had expected $5.98 on average.

Shares fell 4.9 percent in New York trading to $98.69 at 9:58 a.m. and were down as much as 7.1 percent.

The forecast “took some steam out of the company’s typically bullish upcoming analyst day in December,” said Ross Muken, an analyst with Evercore ISI who rates the shares “buy.” “We see this as a setback for shares that have been viewed as a safe haven.”

CVS posted third-quarter earnings that matched the estimate of analysts surveyed by Bloomberg, while sales rose in its prescription drug management business and retail pharmacies. Profit excluding one-time items was $1.29 a share. Revenue rose 10 percent from a year earlier to $38.6 billion. Analysts had projected $38.2 billion.

The company narrowed its full-year adjusted earnings forecast to $5.14 to $5.18 a share from its prior projection of $5.11 to $5.18. On average, analysts had estimated $5.16 a share.

CVS has been bulking up through acquisitions, agreeing earlier this year to buy the nursing-home pharmacy Omnicare Inc. and the pharmacy locations inside Target Corp. stores. Competitors are growing too, contributing to a record year for consolidation in the health-care industry. UnitedHealth Group Inc.’s pharmacy arm, OptumRX, bought benefit-management company Catamaran Corp. in July. Walgreens Boots Alliance Inc.’s agreement to purchase Rite Aid Corp., announced this week, could threaten CVS’s market share in pharmacy sales.

CVS’s deal activity may have led investors to expect greater growth in the coming year, Muken said. "While no one can complain about a $100 billion behemoth growing EPS 10-14 percent in a challenging environment,” he wrote, expectations “were clearly somewhat higher."

CVS said its preliminary 2016 guidance is "in line with the company’s five-year growth targets," according to the statement. The guidance assumes the completion of the Target pharmacy purchase, excludes integration and transaction costs associated with its recent acquisitions, and accounts for $4 billion in share repurchases next year, CVS said.

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