By Amina Niasse and Sriparna Roy
(Reuters) – CVS Health beat Wall Street estimates for fourth-quarter profit on Wednesday and provided an annual forecast that largely met expectations, hinting at an improvement in performance in its first full quarter under new CEO David Joyner.
The results eased investor fears and sent shares up more than 15% in early trading. They had slumped more than 40% last year as the company missed earnings targets for the first three quarters of 2024 and later pulled its forecast.
Like peers, the healthcare conglomerate has faced elevated costs across its Medicare plans for people aged 65 and older or who are disabled. However, the impact was more pronounced for CVS as it enrolled the highest number of new members under the plans.
CVS expects annual profit between $5.75 and $6.00 per share. Analysts on average were expecting $5.96 per share, according to data compiled by LSEG.
“We have strong momentum heading into 2025, we have the right assets, the right leadership and the right strategy in place,” Joyner said on a call with analysts.
The outlook is probably conservative and is beatable, said James Harlow, senior vice president at Novare Capital Management, in contrast to the past few years where the company would put out optimistic outlook and then cut them.
The company’s medical loss ratio, or percent of premiums spent on patient care, deteriorated to 94.8% from 88.5% a year-ago period, but improved from a record-high of 95.2% in the prior quarter.
Analysts expected the company to report a loss ratio of 95.46%, according to consensus estimates compiled by brokerage Deutsche Bank. The company sees the ratio for 2025 to be 91.5% at the low end.
“Medical trends remain elevated, although what we experienced in the fourth quarter was less severe than what we assumed,” said Chief Financial Officer Thomas Cowhey on the call.
Insurers typically aim for around 80% of premiums collected to be spent on claims but in recent quarters CVS and rivals have experienced higher ranges.
The results are a “solid first step in the right direction”, said Baird analyst Michael Ha, adding that a few more quarters of positive performance in 2025 would be needed to gain comfort that CVS has cleared the hurdle.
PHARMACY PROPS UP
CVS laid out cost-cutting plans in November and named a new insurance head as part of Joyner’s efforts to turn around the company.
The company’s healthcare benefits unit posted a quarterly loss of $439 million compared to a profit of $676 million a year ago.
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