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Dividend-paying pharmacy stocks have had a rough time of late. CVS Health (NYSE: CVS) reported earnings on August 7 and lowered its earnings forecast. Second-quarter revenue of $91.23 billion fell short of expectations, and adjusted earnings per share of $1.83 fell from $2.21 a year ago. Part of the concern about CVS Health is its focus on healthcare as a growing business unit. As part of the earnings call, CEO Karen Lynch announced she would take over the company’s health care benefits division directly.
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She recently spoke with Jim Cramer on CNBC’s Mad Money about her plans for the future. The business most people know CVS Health for, pharmacy, appears to be doing well. In-store pharmacy sales increased 9% and prescription drug sales increased 6%. Lynch emphasized the strength of this business, telling Cramer, “Many of our businesses are doing well; retail and pharmacy are doing well, with the best market share we’ve ever had.”
The weakness of Aetna’s business unit prompted Lynch to decide to make changes in the health insurance benefits area. On the conference call, Lynch said financial performance had not met her expectations. Brian Kane, former president of Aetna, is leaving the company and Katerina Guerraz, who has been with Aetna for 20 years, will become chief operating officer of the business unit. Lynch told Cramer she will focus on the financial execution of that business unit.
Cramer leaned on the strength of the retail business, noting that while CVS Health has closed some stores, people appear to be using CVS Health’s medical services more, including visiting pharmacies for vaccinations. CVS Health lowered its 2024 adjusted earnings per share forecast to a range of $6.40 to $6.65, and Cramer questioned whether once the health benefits part of the business gets back up and running, the company could hit an earnings target of $8 or more. Lynch said she sees momentum in the business and “we’re comfortable with the 2025 guidance.”
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Is Amazon a threat to CVS Health’s brick-and-mortar business? Cramer questioned the potential competition from the e-commerce giant, but Lynch explained that community presence is important for pharmacies and vaccinations. The company is changing some of its stores’ formats to offer more Oak Tree health services.
The company is also making changes to how it handles self-checkouts. While some thefts are still traced to self-checkouts, Lynch mentioned a new system that allows loyal customers to access some of the items locked for theft reasons by using their phones and an app to access QR codes and open cabinets.
CVS Health stock is down nearly 23% at the time of this writing. The company pays out $2.66 annually and has a current dividend yield of 4.6%. It has paid a quarterly dividend since 2012. Analysts rate CVS Health as a consensus buy, although several analysts have recently lowered their price targets.
CVS Health’s future success depends on the company’s ability to truly integrate all of its businesses. Cramer put his faith in Lynch, saying, “If anyone can do it, it’s you.”
Investors will be interested to see next quarter whether Lynch succeeds in strengthening its health insurance benefits business through cost reductions and increased profits.
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This article, “Jim Cramer asks CVS Health CEO if the company can turn things around,” originally appeared on Benzinga.com
