Last week, CVS Health (CVS) spooked its shareholders when the firm pre-announced weak Q3 results. It also abruptly replaced its CEO.
CVS expects GAAP of $0.03 to $0.08 a share. The non-GAAP EPS estimate of $1.05 is below the $1.70 EPS that analysts expected. The earnings disappointment is a result of a $1.1 billion charge associated with its Medicare and Individual Exchange business. It will cost $0.63 in EPS.
CVS will also replace its CEO with David Joyner, replacing Karen Lynch.
Issues
The healthcare giant faces rising costs in its health insurance business. In addition, the government is watching its PBM business closely. Slowing sales at its drug stores also hurt overall performance.
CVS stock is out of favor. In contrast, investors are buying Walgreens Boots (WBA). They are speculating that WBA stock bottomed at around $8.25.
Neither firm is appealing at this time. The PBM business is dragging CVS’s prospects as costs from the Aetna unit mount.
The Fix
CVS needs to review its business strategy. It must return its focus on the profitable business units. It might consider selling money-losing sectors at a loss.
Walgreens already recognized that opening stores in the last 15 years at a loss was a mistake. It said it would close thousands of stores. CVS may consider following Walgreens’ strategy.
