CVS gains as drugstores withstand fading demand for Covid shots

CVS Health Corp. rose after increasing its 2022 earnings outlook and beating analysts’ expectations for second-quarter profit as rising sales of over-the-counter Covid-19 tests helped its drugstore chain withstand fading demand for vaccines and laboratory diagnostics.

Profit for the year will be $8.40 to $8.60 a share, Woonsocket, Rhode Island-based CVS said Wednesday in a statement, an increase of 20 cents across the range.

Growth across its retail, insurance and pharmacy benefit units drove revenue to $80.6 billion, up 11% from a year earlier, beating Wall Street expectations.

Adjusted earnings for the quarter were $2.40 a share, beating the average estimate of $2.17.

While pharmacies have served as a convenient hub for accessing Covid-19 shots, tests, and other essentials, demand for lab tests and vaccines has faded.

Still, CVS sales in the retail and long-term care unit saw single-digit growth in the quarter, driven by increased prescription and front-store volume, rising costs of drugs, and over-the-counter sales of home Covid tests.

“The biggest beat was in the retail segment, where same-store sales growth was much stronger than expectations for both front store and pharmacy, accompanied by higher margins,” Evercore ISI analysts Elizabeth Anderson and Michael Newshel said in a note.

The shares, which had fallen 7.6% this year through Tuesday’s close, gained as much as 4.8% as of 9:35 a.m. in New York. It was their biggest intraday increase since May 4.

The pharmacy-benefits unit, CVS’s largest segment, achieved double-digit growth, recording quarterly revenue of $42.8 billion.

The health-insurance unit also saw double-digit expansion with sales of $22.8 billion.

The insurance unit’s medical benefit ratio, the percentage of premiums spent on patient care, fell to 82.9% from 84.1% in the same period a year ago, suggesting the business became more profitable.

CVS has been working with the Biden administration to continue offering the Covid test-to-treat program in their Minute Clinics and pharmacies, Chief Executive Officer Karen Lynch said on a call with investors and analysts.

Lynch also said the company will be implementing pharmacist prescribing under certain conditions to serve customers with Covid-19.

“This furthers our strategy to expand access to health services and helps consumers to navigate the best site of care,” Lynch said.