CVS Health Corp Reports Earnings Beat Ahead of Aetna Merger

CVS Health Corp (NYSE: CVS) stock initially jumped more than 2 percent on Tuesday after the company topped third-quarter earnings expectations and said its acquisition of Aetna ( AET) should close before Thanksgiving.

Analysts say third-quarter numbers were solid, and investor focus will now shift to how CVS and Aetna will create long-term value for shareholders.

[See: 9 Health Care Stocks to Buy for Income.]

CVS reported adjusted earnings per share of $1.73 on revenue of $47.3 billion in the third quarter. Both numbers topped analyst expectations of $1.71 and $47.2 billion, respectively. Revenue was up 2.4 percent compared to a year ago.

Same-store sales were up 6.7 percent overall. Same-store prescription sales were up 9.2 percent, and pharmacy same-store sales were up 8.7 percent.

CVS says it must gain approval for its $69 billion Aetna merger from five additional states. The company received preliminary approval for the deal from the Department of Justice last month. Management also said it is confident that it can exceed its initial projections of $750 million in synergies related to the deal.

“While CVS and Aetna remain separate companies today, the performance of both companies highlights the very solid financial foundation on which we’ll build our revolutionary new model that will transform the health care experience for consumers and, in the process, deliver substantial value for our shareholders,” CEO Larry Merlo says in a statement.

Looking ahead, CVS reiterated its full-year EPS guidance of between $6.98 and $7.08. Analysts are expecting full-year EPS of $7.04. CVS also guided for full-year cash flow from operations of $9 billion and free cash flow of $7 billion.

Bank of America analyst Michael Cherny says the Aetna merger seems to be on track, and the deal may provide some major value in the long term.

[See: 8 Stocks to Buy for the Fourth Quarter.]

“CVS’ third quarter can be described as solid across the board, with total adjusted EBIT right in-line with our estimates and EPS above,” he says. “All-in, the lack of any major surprises ahead of the deal should be a positive for what remains a highly attractive valuation.”

Bank of America has a “buy” rating and $90 price target for CVS stock.

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