CVS Health Corp (NYSE:CVS) Upgraded to Outperform Following Q2 Results

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FBR Capital remains optimistic on CVS Health to deliver stronger results in future

CVS Health Corp (NYSE:CVS) announced financial results for 2QFY16 on Tuesday, August 2. The company succeeded in beating the Street on the bottom line, however it missed on the top line expectations. It reported earnings per share of $1.32 and revenues of $43.7 billion against the Street estimate of $1.30 in EPS and $44.2 billion in revenues. By reporting these figures, the company grew its revenues by 17.6% on year-over-year basis. Not only this, it also reported an increment of 8.3% YoY in EPS. Thus, FBR Capital analyst Steven Halper restated his Outperform rating on the stock.

The company further provided guidance for the third quarter of FY16 as well as the entire fiscal year. The pharma company expects its 3QFY16 EPS to be within the range of $1.55-1.58, depicting 17.4-19.7% sequential increase if it meets its expectations. It also raised FY16 EPS expectations from $5.73-5.88 to $5.81-5.89. The company also expects to raise FY16 cash flows from within the range of $7.6-7.9 billion to $8.8-9.1 billion.

Furthermore, CVS pharmacy services segment, largest contributor to the revenues of the company, reported $29.5 billion in revenues. This was an increase of 20.7% YoY. The revenue growth could be credited to growth in new pharmacy clients and increase in generic drug sales following the acquisition of Omnicare. Due to this, the segment’s operating income rose by 10.4% YoY.

Moreover, the company’s retail segment also did exceptionally well in this season. The revenues of the division came out to be $19.9 billion, marking an increase of 16% YoY. The division credits this increment to rise in same-store sales and acquisition of Omnicare and Target. Same-store sales rose by 2.1% YoY, translating into an increase in the segment’s operating income to $1.7 billion.

Based on these figures, FBR Capital analyst Steven Halper not only reiterated his Outperform rating on the stock but also maintained a price target of $120 on the shares. The firm was impressed by the performance of CVS Health this season, due to which it decided to stay as buyers of the stock.

Steven Halper further commented that he credits these results to the $106.19 billion company’s Pharmacy Benefit Management division. The division performed better than expected. Due to this, he believes that the company growth remains strong as the specialty revenue grew by 23%. Not only this, he believes that CVS Health FY17 selling season is going to be strong, as indicated by the company. This could be the reason why the company increased its EPS guidance and cash flow outlook for FY16.

Such results have encouraged FBR Capital analysts to remain hopeful on the shares of the company. They have confidence that the company would deliver strong results in quarters to come. They reiterated the Outperform rating on the stock. Other analysts at FactSet Fundamentals maintain 18 Buy, three Overweight, and five Hold ratings on the stock. They have set a 12-month median price target at $112.70, an increment of 14.93% over the last close. The company currently has 1.07 billion shares outstanding in the market.

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