• by Thom Forbes  @tforbes, May 2, 2019

Boosted by its $70-billion acquisition of health insurer Aetna, CVS Health yesterday reported that it was in robust health for its first quarter, with a 42% jump in profit. It also issued a prognosis for the rest of the year that's rosier than it projected back in February.

“Overall profit grew to $1.42 billion, or $1.09 a share, from $998 million, or 98 cents a share, in the same period a year ago. Excluding non-recurring items, adjusted EPS came to $1.62, above the FactSet consensus of $1.50. The sizable increase in revenue was largely driven by income from health insurer Aetna Inc., which was acquired by the pharmacy chain in November. Higher market prices for brand-name drugs and an increase in prescriptions also helped drive sales,” Sarah Toy reports for MarketWatch.

“CVS’s health-care segment, which now includes Aetna, brought in sales of $17.87 billion in the latest quarter, compared with just $1.318 billion a year ago. Back then, the segment only consisted of the company’s SilverScript Part D prescription drug plan business.”

Still, considering there’s so much uncertainty about the future direction of healthcare in the U.S. in general, and there remain questions about the integration of Aetna in particular, observers' outlooks are guarded.

“A federal judge is still reviewing that acquisition, but CVS Health reported results on Wednesday that included a full quarter of Aetna’s contribution for the first time. The insurer helped to offset challenges that CVS Health and its competitors are facing,” writes the AP’s Tom Murphy for the Providence Journal. “Payers like employers and insurers are pushing to cost cuts, which squeeze profits on each prescription. Generic drugs are less profitable, and stores face growing competition in the areas outside their pharmacies.”

But “the Aetna deal gave CVS Health a new line of business with 23 million customers and helped its PBM operation retain a key client,” Murphy adds.

“Investors certainly don’t mind the nice start to the year, but they’re really looking towards the company’s forecasts for 2020 and beyond which will be delivered at its investor day on June 4. CVS’s longer-term predictions will tell us how confident it is in its new and bulked-form, and after this quarter’s positives. The company has taken care not to raise expectations too high,” Max Nisen writes for Bloomberg.

“CVS’s commentary on drug-pricing trends during its earnings call suggested that they are more likely to be a headwind than a boost going forward, this quarter notwithstanding. The company’s pharmacy benefit management unit -- which negotiates drug costs for health plans -- isn’t retaining business as well as it usually does, and the company didn’t have a satisfying explanation for why that’s happening,” Nisen continues.

The headwinds have been blowing on Wall Street for months.

“CVS shares lost a third of their value after the completion of the Aetna deal, erasing roughly $34 billion of market value. On Wednesday, the shares were up 5% at about $57 in afternoon trading,” Sharon Terlep and Anna Wilde Mathews write for the Wall Street Journal.

“None of us are happy with where our stock price is,” CVS CEO Larry Merlo tells them in an interview. “From our perspective we’re very early. We’re creating a pathway that no one has gone on in an effort to make health care more local and make it more simple.”

Meanwhile, the 2020 elections are shaping up to be a referendum on how America wants its healthcare delivered, among other issues. Cautioning potential investors to pay heed to folks who got into the stock when it was in the dumps and will want to sell as it rebounds, The Street’s Jim Cramer also points to two familiar nemeses: Bernie and Bezos.

“Remember that you’ve got Senator [Bernie] Sanders  [who] could be shooting against you and you also have Amazon's AMZN shooting against you," Cramer says.

During its earnings call, which was transcribed by Seeking Alpha, Merlo disclosed that CVS “will expand its new health hub concept store throughout the Houston market after seeing promising early results in the initial pilot stores,” Bruce Japsen reports for Forbes.

“CVS earlier this year began to pilot three ‘HealthHUB’ locations in Houston that dedicate more than 20% of the store to health services that include new durable medical equipment, supplies and various new product and service combinations. CVS executives Wednesday said they added thousands of new personal care items as well as additional services at its MinuteClinics in the health hub stores,” Japsen explains.