CVS Health (NYSE:CVS) has revised its adjusted profit forecast for 2024 downwards, citing increased medical procedures among older adults in the United States, which has led to higher costs in its insurance business in the fourth quarter.
Despite exceeding Wall Street estimates for fourth-quarter profit, driven by strong performance in its drugstores and pharmacy benefits management (PBM) unit, CVS shares rose over 3% to $76.26 in morning trading.
The healthcare conglomerate, like its competitor Humana (HUM.N), highlighted a surge in medical care towards the end of the year, particularly outpatient procedures among individuals enrolled in Medicare Advantage plans. These plans, managed by insurers and subsidized by the government, cater to individuals aged 65 and older or those with disabilities.
Increased instances of hip and knee surgeries, medical services for the eyes, and dental work, along with vaccinations such as the RSV shot, contributed to rising costs in CVS’s Aetna Medicare Advantage plans, according to Chief Financial Officer Thomas Cowhey.
The medical benefit ratio of CVS’s Aetna unit, indicating the percentage of premiums spent on medical care, rose to 88.5% in the fourth quarter compared to 85.8% a year ago.
Last month, Humana revised its profit forecasts for 2024 and 2025 due to escalating costs, leading to a slight decline in CVS’s stock performance.
CEO Karen Lynch expressed caution in the forecast, awaiting clarity on industry-wide trends. Morningstar analyst Julie Utterback suggested that investors might find relief in CVS’s moderate downward adjustment of its 2024 outlook compared to Humana’s more substantial cut, attributing this difference to CVS’s broader diversification beyond Medicare-focused services.
The new forecast of at least $8.30 per share for 2024, down from the previous projection of at least $8.50 per share, accounts for the potential elevation in medical costs. Additionally, CVS is targeting low double-digit percentage growth in adjusted earnings per share in 2025 over its updated 2024 forecast.
In the fourth quarter, CVS reported adjusted earnings of $2.12 per share, surpassing Wall Street estimates of $1.99 per share.
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Author Faith Yakubu 
