Traders cash in on weak prices of CVS even as guidance disappoints | Business News

Traders cash in on weak prices of CVS even as guidance disappoints

31 Oct 2015 | Author: | No comments yet »

CVS Health Gives Weak Profit Outlook.

CVS Health Corp. spooked investors with a weak profit outlook for next year, highlighting concerns that its margins will continue to suffer from lower reimbursement rates for dispensing medications.CVS Health’s third-quarter profit jumped 30 percent but that was still short of Wall Street expectations, and an early peek at 2016 from the nation’s second-largest drugstore chain also disappointed.

CVS shares fell 5% in early trading Friday after the health-care company called for 2016 earnings between $5.68 and $5.88 a share, well below the $6.02 target forecast by analysts recently polled by Thomson Reuters. The Woonsocket, R.I., company said Friday it expects adjusted earnings of $5.68 to $5.88 next year, which represents growth of 10 percent to 14 percent. The earnings goal falls within CVS’ annual target of 11% to 14% growth but includes recent acquisitions like Omnicare Inc., which dispenses medications to nursing homes. Analysts and investors worried the addition of Omnicare and the pending acquisition of Target Corp.’s pharmacy business masked a slowdown in CVS’ core businesses.

CVS executives said reimbursement rates are under pressure as more drugs are dispensed through the federal Medicare and Medicaid programs, which carry lower margins than private insurers. In August, the company closed a more than $10 billion deal to buy the pharmaceutical distributor Omnicare, an acquisition that will give it national reach in dispensing prescription drugs to assisted living and skilled nursing homes, long-term care facilities, hospitals, and other care providers. Meanwhile, Walgreens Boots Alliance Inc. earlier this week agreed to buy Rite Aid Corp. for $9.4 billion, a deal that combines two of the top three chains by number of locations. Friday’s muted outlook came as CVS reported its third-quarter profit rose by nearly a third to $1.25 billion, as higher revenue for managing drug plans for clients offset weaker growth at its stores. The front-end, where CVS sells over-the-counter drugs, snacks, beauty products and other sundries, also continued to be hurt by last year’s decision to stop selling tobacco products.

In contrast, its Caremark and other pharmacy-services businesses posted a 13% increase in sales to $25.5 billion, driven by growth in selling specialty drugs and processing more claims.

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