By Josh Nathan-Kazis
CVS Health’s quarterly earnings report Wednesday morning will shed light on whether the earthquake that has shaken the Medicare Advantage business this earnings season will rattle CVS, too.
An unexpectedly high level of utilization of medical services by U.S. seniors in November and December of 2023 led to a spike in medical costs for Humana and UnitedHealth Group, those companies reported in January.
Humana and UnitedHealth, along with CVS, are major players in the Medicare Advantage business, which offers privately-managed, government-funded health plans to U.S. seniors. The higher costs are raising worries about the Medicare Advantage business, which all three of the companies have dedicated extensive resources to serving.
Humana shares have slid about 20% this year, while UnitedHealth shares are down 3.1%. Adding to the anxiety around Medicare Advantage’s future profitability was Humana’s report that the Centers for Medicare and Medicaid Services’ proposed payment rates for the program in 2025 are lower than expected.
CVS shares haven’t been as badly hit as Humana — which is essentially a Medicare Advantage pure play — but the stock is down about 6% this year.
Analysts expect CVS to report fourth-quarter sales of $90.6 billion, according to FactSet, and earnings of $1.98 per share.
One closely watched number will be CVS’s medical loss ratio, or MLR, which tracks the proportion of premiums paid out to cover medical expenses. Analysts expect an MLR of 88.2% for the quarter.
At an investment conference in early January, CVS CFO Thomas Cowhey said the company had “continued to see pressure” in its healthcare benefits business, and that the MLR for 2023 might be higher than the 86% target the company had discussed as recently as November.
For 2024, CVS is expecting an MLR of 87.2%.
“We assume CVS would reiterate 2024 MLR guidance of 87.2% this early in the year, but believe utilization trends will remain a key focus,” Mizuho analyst Ann Hynes wrote in a note out Monday.
The company in December laid out additional guidance for 2024. It expects annual revenue of $366 billion, and adjusted earnings of at least $8.50 per share.
CVS has scheduled an investor call for 8 a.m. ET Wednesday morning.
CVS shares have fallen about 14% over the past 12 months.
Write to Josh Nathan-Kazis at josh.nathan-kazis@barrons.com