By Amina Niasse and Sriparna Roy
(Reuters) – CVS Health beats Wall Street estimates for fourth quarter profit on Wednesday and provided an annual forecast that met much expectations, suggesting an improvement in performance in its first full quarter under the CEO New David Joyner.
The results relieved the fears of investors and sent shares up more than 15% in early trading. They fell more than 40% last year as the company missed earnings targets for the first three quarters of 2024 and later removed its forecast.
As peers, the healthcare conglomerate has faced higher costs across its Medicare plans for people aged 65 and over or are disabled. However, the impact was more apparent for CVs as it registered the highest number of new members under the plans.
CVs expect annual profit between $ 5.75 and $ 6.00 per share. Average analysts expected $ 5.96 per share, according to data compiled by LSEG.
“We have strong momentum going into 2025, we have the right assets, the right leadership and the right strategy in place,” Joyner said on call with analysts.
The forecasts are probably conservative and beating, said James Harlow, Senior Sub -President at Novare Capital Management, in contrast to the past few years where the company would give out optimistic outlook and then they cut.
The ratio of the company's medical loss, or the percentage of premiums spent on patient care, declined to 94.8% from 88.5% per year ago, but made a record ever 95.2% in the previous quarter.
Analysts expected the company to report a loss ratio of 95.46%, according to consensus estimates produced by Deutsche Bank's brokerage. The company sees that the ratio for 2025 is 91.5% at the low end.
“Medical trends remain higher, although what we experienced in the fourth quarter is less serious than we assumed,” chief financial officer Thomas Cowhey said on the call.
Insurers usually aim at about 80% of the premiums collected on claims but in recent quarters CVs and competitors have experienced higher ranges.
The results are “a solid first step in the right direction”, said analyst Baird Michael Ha, adding that a few more positive performance quarters would be needed in 2025 to get comfort that CVs had cleared the barrier.
Pharmaceutical props up
CVS identified cost cutting plans in November and named a new Head of Insurance 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.