What's going on with CVS Health?
What's going on with CVS Health?
is plummeting and I can't seem to put my finger on what is wrong. Their retail side slowed down a bit but not enough to warrant such a drastic decline in stock price. Did I miss anything?
works in 3 sectors; retail, pharmacy benefit management (PBM), and Aetna+. majority of their revenue comes from PBM, it largely being their highest earner for ages while Aetna comes in second. Biden introduced new restrictions on spending on medicaid that directly affected Aetna and its customer base. Add to that the risks associated with medicare (which is Aetna's 19% customer base), investors have gone into panic mode. This is the main reason behind the decline.
The entire sector saw a 10% decline in April and Aetna's earnings were nothing short of messy. Their MBR has shot up which had a cascading effect on their premiums. Remember, in this industry, even 1-2% change can be disastrous for earnings. Their premiums are paid out a percentage of the MBR.
On the other hand, the PBM business has stalled likely due to Blue Shield dropping CVS. This hurt their earnings a lot but isn't the highlight of the story. The PBM business is expected to grow 9% yoy and it's highly unlikely that CVS will be mass dropped by clients. So the bottomline is that Aetna was the biggest reason behind their decline. However, their presence in the industry remains more or less unchanged.
