CVS cuts 2024 profit outlook as medical-cost surge clouds Q4 earnings

CVS Health (CVS) - Get Free Report shares edged higher in early Tuesday trading after the health insurance and pharmacy retailer lowered its full-year profit forecasts amid concern about the continued surge in U.S. medical costs.

Health insurance groups such as CVS, as well as rivals Humana (HUM) - Get Free Report, UnitedHealth (UNH) - Get Free Report and Cigna (CI) - Get Free Report, are seeing payouts to policyholders surge as more Americans, typically those in retirement age, find the time and space for elective surgeries in hospitals that were previously overwhelmed by covid patients.

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That's added significant pressure to medical-cost ratios, a key profitability metric that isolates an insurer's payouts against the premiums it collects, for the industry's biggest companies.

CVS said its benefit-expense ratio rose more than 2.7% from a year ago, to 98.5% over the fourth quarter and up more than 2.4% over all of 2023 to 86.2%.

The medical spike is expected to continue, CVS said, adding that "Uppon finalizing the medical cost trend analysis for the fourth quarter of 2023 and recognizing potential implications for elevated medical cost trends",, the group would lower its profit forecasts.

CVS, like many of its rivals, is seeing a surge in medical costs that will trim its 2024 bottom line.VIEW press/Getty Images

CVS trims 2024 earnings forecast

CVS said it sees 2024 adjusted profit of at least $8.30 a share, down from its prior forecast of $8.50 a share. It estimates cash flow from operations at between $12 billion and $12.5 billion.

For the three months ended in December, CVS posted adjusted profit of $2.12 a share, a 4% increase from a year earlier. The latest figure firmly topped Wall Street forecasts.

Group revenue also impressed, rising nearly 12% from a year earlier to $93.81 billion, well ahead of analysts' estimates of a $90.36 billion tally.

"With a focus on delivering care and value, we had a strong fourth quarter and full year in 2023 as we build a world of health around every consumer," said CEO Karen Lynch. "We will continue to drive affordable access to care when, where and how people want, while we improve transparency throughout the health care system."

CVS shares were marked 1.8% higher in pre-market trading immediately following the earnings release to indicate an opening bell price of $75.09 each.

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