Why CVS Health Stock Is Trading Lower

CVS Health Corp CVS shares are trading lower by 2.1% to $66.04 during Tuesday’s session. Shares of health insurers are trading lower in sympathy with UnitedHealth Group Inc UNH, which reported third-quarter financial results and lowered the upper end range of annual EPS outlook.

What To Know: UnitedHealth, which operates the Optum health services arm and the UnitedHealthcare insurance business, reported adjusted earnings per share (EPS) of $7.15, beating Wall Street expectations of $7.00.

This earnings growth came as the company expanded its domestic customer base by 2.4 million people in its commercial offerings and reported revenues of $100.8 billion, up by 9.1% year over year.

The report signaled a strengthening grip on both healthcare services and insurance, areas where CVS also seeks to grow, especially after its acquisition of Aetna in 2018.

Optum, a direct competitor to CVS’s healthcare service operations, posted revenues of $63.9 billion for the quarter, reflecting significant year-over-year growth. This division provides healthcare services, including pharmacy services, and the strong performance suggests increasing pressure on CVS's Caremark PBM segment.

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As Optum grows, CVS may face challenges in retaining market share in both PBM and healthcare services, especially as it tries to integrate its own recent acquisitions such as Oak Street Health and Signify Health to enhance its primary care and home health offerings.

What Else: UnitedHealth’s lowered EPS guidance of $15.50 to $15.75 for 2024, down from the previous $15.95 to $16.40, did little to offset market concerns about CVS.

Although the adjusted EPS outlook for UnitedHealth remained in line with expectations at $27.50 to $27.75, reflecting the impact of a recent cyberattack on its Change Healthcare business, the overall performance highlighted the company's resilience in absorbing operational challenges.

For CVS, which is still integrating several recent acquisitions and facing ongoing scrutiny of its PBM practices, the competitive landscape looks more challenging as UnitedHealth continues to assert its strength.

Moreover, UnitedHealth’s expansion in membership and service capabilities places pressure on CVS's strategy to grow its healthcare footprint.

CVS has heavily invested in building out its healthcare services beyond traditional pharmacy offerings, but with UnitedHealth’s strong earnings growth, CVS may face difficulties in executing its expansion plans at a competitive pace.

Investors are also reacting to broader concerns about CVS's exposure to regulatory risks. Both CVS and UnitedHealth have requested the recusal of Federal Trade Commission (FTC) Chair Lina Khan in ongoing litigation over pharmacy benefit manager (PBM) practices, an area under intense scrutiny.

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Is CVS A Good Stock To Buy?

Wall Street analysts view CVS Health on the whole as a Neutral, given the history of coverage over the past three months. Charles Ryhee from TD Cowen in CVS Health is the most optimistic, expecting a 44.07% rise in the stock in the coming year.

But looking at how the market as a whole thinks of the stock, you can reference historical price action for views on whether investors feel strongly about the stock one way or another. In the past 3 months, CVS Health rose 6.3%, which indicates that opinion improved on the business and how attractive it is to own based on either its stock price, or underlying fundamentals, like revenue, which rose 2.6% over the past year.

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CVS has a 52-week high of $83.25 and a 52-week low of $52.77.