NEW: CVS Health Insurance Unit HEMORRHAGES $924M - Shares Pop 14%

Well, I hope our boy David Joyner packed a lunch and a six pack because he’s definitely got his work cut out for him. In short, during his first earnings report as CVS Health’s new CEO, Joyner found himself addressing a company that’s feeling the squeeze from all sides. Higher medical costs? Check. Pressure from investors? Check. A health insurance unit (cough, Aetna) that’s bleeding more than Americans' savings on Black Friday? Double friggin ‘check.

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But hey, at least the stock jumped 14% after the announcement LOL. Silver lining friends, silver linings. 

(Source: Investopedia) 

Of course, the numbers aren’t as juicy as the capitalist icon of a CVS receipt, but they were close. The company’s revenue came in at $95.43 billion, which beat Wall Street’s expectations of $92.75 billion. This was a fairly impressive start to the financials until CVS came out of the closet with their EPS of $1.09, which was way below the $1.51 analysts were hoping for. Ooof.

(Source: ABC) 

The main reason for this faceplant in EPS numbers came from medical costs. You see, thanks to a spike  in healthcare utilization (read: boomers finally getting those delayed surgeries post-COVID), Aetna's medical benefit ratio shot up to 95.2%. Translation: For every dollar they took in, Aetna shelled out 95 cents. Not exactly a recipe for fat margins.

Meaning, not surprisingly, Aetna is the degenerate problem child here. The health insurance unit posted a $924 million adjusted operating loss for the quarter. That’s a huge departure from last year when they were actually making money. And while the industry as a whole is feeling the heat from higher medical costs, CVS seems to be taking it to the face harder than most. 

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And Joyner knows it, too as he stated: “While the entire industry has seen elevated utilization coming out of the pandemic, we have been more acutely impacted than others,” Translation: We’re getting b*tch slapped, and we’re not sure how to fix it yet.

What’s more is that CVS had to set aside a $1.1 billion “premium deficiency reserve” in case future premiums don’t cover anticipated claims. Apparently they haven’t heard of insurance?

(Source: Market Watch)  

Now to be fair, let’s all keep in mind that David Joyner wasn’t exactly handed the keys to a shiny new Cadillac. In fact, he was given the keys equivalent to a beat up Toyota Corolla with a leaky exhaust and two hubcaps missing instead of one… gasp. But, since taking over for Karen Lynch, who deliberately steered CVS into the toilet with share’s dropping -25% YTD, Joyner has tried to reassure investors that he can right his predecessors wrongs.

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His approach? Play it conservative. In his own words, “Establishing credibility and earning the trust of our investors is one of my top priorities.” To do that, Joyner’s holding off on giving any formal guidance until next year. Smart move, considering CVS has already slashed its full-year outlook three times this year. Meaning, investors are getting whiplash, and not the good kind you sue for.

The good news though is the retail pharmacy side of CVS is at least pulling some weight. Sales were up 12% from last year, and the company’s share of the U.S. pharmacy market hit an all-time high of 27.3%. Plus, they’ve got plans to close 271 more stores as part of a larger cost-cutting initiative that’s aiming to trim $2 billion in expenses.

(Source: Timeout) 

But, but, but… let’s be honest, the pharmacy biz alone isn’t going to save CVS from the mess Aetna’s gotten it into. And while Joyner’s playing it safe by not promising the moon, Wall Street is going to need more than a cautious approach to get back on board.

In the end, it’s clear that CVS has a lot to prove, but the clock is ticking. Sure, a 14% soaring stock price was a nice jolt of confidence yesterday, but the stock has since recorrected, dropping -3.07% today. Plus, given the fact that investors are already antsy after a year of declining stock prices and disappointing earnings. Joyner needs to show he can navigate these choppy waters with his newly appointed Aetna President, Steve Nelson (former CEO of UnitedHealthcare), or CVS might just find itself taking on more water than it can bail out.

As always do what you will with this information, but don’t count CVS out just yet. As always stay safe and stay frosty, friends! Until next time…

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Stocks.News does not hold positions in companies mentioned in the article.