CVS Health (CVS) Tops Q2 Expectations and Raises Guidance But Shares Fall on 2022 Commentary That is 'Not Surprising' Says Analyst

CVS Health (NYSE: CVS) reported better than expected second-quarter earnings as more and more customers return to physical stores, but shares fell on cautious 2022 commentary.

The drugstore chain reported Q2 adjusted earnings of $2.42 per share to easily exceed the $2.06 per expected from market analysts. Sales surged over 10% to $72.62 billion to again top the consensus of $70.3 billion.

"We delivered another quarter of strong results and once again raised our outlook for the year. This quarter was highlighted by broad sales and earnings outperformance, as well as sequential operating margin improvement. We continue to play a critical role in helping America prevail against the pandemic while demonstrating the effectiveness of our unique business model, which is focused on meeting customer needs through innovations that make health care more local, affordable and connected,” said CVS Health President and CEO Karen S. Lynch.

Following better-than-expected Q2 results, CVS raised full-year EPS guidance to a range of $7.70 to $7.80 on an adjusted basis.

Furthermore, the company also announced a “significant investment” to raise the minimum hourly wage to $15/hour effective July 2022.

"Attracting and retaining top talent across our businesses is critical as we continue to redefine what it means to meet people's health needs," commented Lynch.

Raised wages are partially responsible for CVS shares trading over 2% lower in today’s trading session. In addition to wages, CVS said it will also expand health services at stores and add more digital options for customers, which will require significant investments and ultimately leave less capital to be spent on dividend payments or share buybacks.

Mizuho’s Ann Hynes said that the 2022 commentary simply overshadowed the strong Q2 report, hence shares trading lower.

“The current 2H:21 and 2022 outlook only includes limited benefits from pediatric COVID vaccines but no benefit from the potential for booster vaccines. Overall, the 2022 commentary is not surprising, given the inherent uncertainties and moving pieces related to COVID-19,” the analyst said in a client note.

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