CVS Health (CVS) stock is bouncing back from a bearish trend in 2019 as its $70 billion acquisition of insurance giant Aetna is beginning to pay dividends.
Shares rose more than 5% in pre-market trading on Wednesday after the company cruised past analyst estimates on both revenue and earnings per share for the March ended quarter and raised its full-year outlook, building the bull case for share recovery after the company's weak outlook in February sent the stock spiraling.
"Revenue growth was primarily driven by the Aetna Acquisition, as well as increased volume and brand name drug price inflation in both the Pharmacy Services and Retail/LTC segments," the company explained in an 8-K filing.
The filing added that a massive increase in operating income for the quarter was also due to the successful fold-in of Aetna's business.
The company now expects 2019 earnings to come in between $6.75 and $6.90 per share, up from the previously guided range of $6.68 to $6.88 per share.
"We generated strong first quarter results, providing positive momentum to start the year. Following the close of our Aetna acquisition in late November, our first full quarter of combined operations was a success in many ways," said CEO Larry Merlo. "With our differentiated collection of health care assets, we are uniquely positioned to lead the transformation of the U.S. health care system."
The key in on Aetna and the revenue generation from this segment is something many investors needed to see, as the company's strong performance in retail sales has far outpaced peers like Walgreens Boots Alliance (WBA) and remained a point of positivity.
For reference, CVS reported a same store sales increase of just under 4%. Walgreens by contrast saw comparable sales decelerate over 7% as its international business weakened. Long receipts may have some merit after all.
However, the main catalyst for the nearly 20% slide to kick off 2019 were fears of the company's ability to integrate its largest ever acquisition and impacts from regulators pushing "Medicare for All" solutions that would kill the business in its crib. That is not to mention the PBM business that has been in regulatory cross hairs for many quarters.
The revenue growth for this segment and successful integration should help assuage the concerns that CVS can control in the near term.
"We see upside resulting from Aetna integration progress, which we believe will allow shares to re-rate higher as the price-to-earnings valuation closes the gap with peers, and a deleveraging of the balance sheet, which has been another concern for investors," the Action Alerts PLUS team said ahead of the earnings release. "We believe the new CVS Health will transform into a diversified pharmacy/healthcare retailer that is integrated with a managed care operation, creating a more personalized and analytic-based experience that all patients will want."
The acquisition may now act as a key earnings driver, buoying pressures on the company's long term care and pharmacy services segments, building back from the distress it caused investors earlier this year as debt was racked up for a not fully realized business segment.
An earnings call is underway at present wherein Merlo is expected to address both the road ahead for his company and the potential regulatory problems that many pharmacy managers and insurers are confronting at present. Listen in here.