Double the good news from CVS Health

CVS Health (CVS) Finished 2022 strong. In fact, fourth-quarter earnings were up 9.5% year-over-year to his $83.85 billion, beating consensus estimates of $76.32 billion for him by more than $7 billion. As has been the case for most of this year, this was led by the pharmacy services sector, with revenue rising 11.2% to $43.75 billion on higher pharmacy claims, growth in the specialty pharmacy business, and brand inflation. rice field. CVS’s Micro Healthcare Benefits (HCB) and Retail/LTC segments also continued to perform well, with revenues of the former up 11.3% to $23.03 billion on strong demand for all products, and of the latter 4.0 % up to $28.18. Thanks to rising prescription volumes and over-the-counter sales, good pharmacy mix and brand inflation,

Increased revenues in pharmacy services, improved purchasing economics, and the benefits of previously implemented business initiatives in retail/LTC offset pressure on margins from expected declines in COVID-19 vaccination and diagnostic testing was helpful. Support growth and higher effective tax rates. As a result, adjusted earnings increased 0.5% to $1.99 per share. Again, his 3.0% drop was better than the $1.92 analysts had predicted.

Nonetheless, CVS simply repeated its previously provided guidance of adjusted earnings of $8.70 to $8.90 per share in 2023. At the midpoint, this represents just 2.4% growth from his $8.69 in 2022, largely reflecting a fading net positive impact. of COVID on that business. The good news is that the business is still expected to generate an impressive cash flow of $12.5 billion to $13.5 billion. And such strong cash generation will allow CVS to maintain an investment grade credit rating even after the additional leverage expected from its previously announced $8 billion acquisition of a major health risk assessment provider. It’s not hard to see why we remain optimistic about our ability to maintain. Signify Health, Inc. (SGFY), a provider of enablement and value-based care, will close (expected in the second quarter) to keep seniors healthy, announced at the same time this morning, about 106 by the end of the year. A billion dollars to make life better.

In fact, we believe the latter announcement is a big reason why CVS shares have defied today’s market sell-off and closed more than 3% higher. Specifically, for a company that expects to lose $225 million to $265 million on an Adjusted EBITDA basis this year, the $11 billion price tag may seem high, but it’s a labor safety issue. It’s just the result of the tremendous growth in sanitation and the rising costs needed to support aggressive expansion efforts. In fact, OSH has been able to more than triple his number of medical centers in the past three years, from 51 at the end of 2019, thanks to his success in reducing healthcare costs for his clients through a value-based approach. I was. Up to 169 now. As a result, revenue could quadruple from his $557 million in 2019 to more than $2.1 billion last year.

With the number of sites expected to nearly double to over 300 over the next four years, OSH’s top-line growth should continue to be very strong. More importantly, as these new clinics scale and reach levels of profit contribution in line with OSH’s more mature and authentic locations, on an individual basis this year, he will make $6.7 million and he Expected to generate his EBITDA of $8.5 million. These locations could contribute approximately $7 million annually to his adjusted EBITDA by 2026. Combined with $500 million in cost synergies, the transaction is expected to prove profitable over time. This means a potential EBITDA contribution of over $2 billion by 2026, or just over five times his purchase price. This, together with the projected contribution from the pending SGFY transaction, is expected to increase CVS to around $9.00 in 2024 and 2025, even with the previously disclosed Medicare Stars Ratings headwinds and major contract losses in 2024. That’s why we expect it to grow to $10.00 in a year. Today’s rally in stocks should bode well for more gains to come.