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CVS Plummets 12% As Pharmacy Network Changes Will Hamper Earnings

Tuesday, November 8, 2016 5:41
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Drug store chain operator CVS Health Corp (NYSE:CVS) early today posted mixed Q3 earnings and offered a very weak outlook, as big pharmacy network changes will lead to the loss of over 40 million prescriptions.

The Woonsocket, RI-based company reported Q3 EPS of $1.64, beating out Wall Street’s $1.57 estimate by 7 cents. Revenue rose 15.5% from last year to $44.62 billion, however, missing analysts’ $45.29 billion view.

Looking ahead, CVS offered a much weaker-than-expected outlook due to massive marketplace changes. The company said it would lose over 40 million retail prescriptions as many retail pharmacy networks begin excluding CVS Pharmacy drugstores. CVS expects Q4 EPS of $1.64 to $1.70, below analysts’ $1.79 view, and full year EPS of $5.75 to $5.83, versus Wall Street’s $5.85 estimate.

On a positive note, CVS boosted its cash flow guidance for 2016, now expecting cash flow from operations of $9.3 billion to $9.5 billion, and and 2016 free cash flow of $6.8 billion to $7.0 billion.

The company commented via press release:

“We posted a solid third quarter with the PBM exceeding our expectations and retail performing at the lower end of our expectations. However, very recent pharmacy network changes in the marketplace are expected to cause some retail prescriptions to begin migrating out of our pharmacies this quarter. In addition, we are currently experiencing slowing prescription growth in the overall market as well as a soft seasonal business. These factors combined are leading us to reduce the mid-point of our guidance for this year by five cents per share. The network changes have more significant implications for our 2017 outlook. While we expect a healthy increase in PBM operating profit growth in 2017, we expect a decrease in retail operating profit growth.”

CVS shares fell $10.40 (-12.47%) to $72.99 in premarket trading Tuesday. Prior to today’s report, CVS had already fallen 14.71% year-to-date.


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