CVS Health
has cut its earnings expectations for the year, citing the spike in healthcare utilization by older Americans that has rocked the managed care sector over the past month.
The guidance cut Wednesday came alongside the company’s fourth-quarter earnings report, which beat Wall Street expectations. CVS stock rose 3.2% in early trading Wednesday.
These first weeks of 2024 have been unsettling for health insurers. High levels of doctor visits and hospitalizations in late 2023 have disrupted expectations around the performance of the Medicare Advantage business, which offers privately-managed, government-funded health plans to U.S. seniors.
Insurers have differed on whether they expect the higher utilization rates to continue.
UnitedHealth Group,
in mid-January, described it as a one-time spike. But
Humana,
which specializes in Medicare Advantage plans, issued sharp guidance cuts.
Humana
shares were down 20% so far this year as of the close of trading Tuesday.
For CVS, fourth-quarter performance turned out to be surprisingly strong. The company on Wednesday reported fourth-quarter adjusted earnings of $2.12 a share and sales of $93.8 billion. Analysts had expected quarterly earnings of $1.98 per share and sales of $90.6 billion, according to FactSet.
CVS’s medical benefit ratio for the fourth quarter was 88.5%, generally in-line with the FactSet consensus estimate of 88.2%. This closely watched metric—more commonly known as a medical loss ratio—tracks the proportion of premiums paid out to cover medical expenses.
The company cut its recently-issued full-year guidance, however, citing “higher-than-expected Medicare Advantage utilization.” CVS lowered its adjusted earnings expectations for 2024 to at least $8.30 per share from at least $8.50 per share previously. Analysts had expected earnings of $8.47 per share, according to FactSet.
The company also raised its expected medical loss ratio for 2024 to 87.7%, from a previous forecast of 87.2%.
In a note out early Wednesday, Raymond James analyst John Ransom wrote that the raising of the MLR was a “move many expected due to emerging utilization trends and commentary out of peers.”
At an investment conference in early January, CVS CFO Thomas Cowhey said the company had “continued to see pressure” in its healthcare benefits business, and that the MLR for 2023 might be higher than the 86% target the company had discussed as recently as November.
CVS shares have fallen about 14% over the past 12 months.
Write to Josh Nathan-Kazis at [email protected]
Read the full article here
