CVS Health (
NYSE:CVS,
Forum) hiked its dividend, tightened its 2016 earnings forecast and repeated its message of patience, as the nation's second largest drugstore chain laid out its growth expectations on Wednesday.
Acquisitions and other business gains will help boost revenue next year, but it will take a few months for some of that to trickle down to the bottom line, and CVS Health leaders said at the company's annual analyst meeting in New York that earnings growth will pick up more in the second half of 2016.
In August, the company closed a more than $10-billion deal to buy the pharmaceutical distributor Omnicare (
NYSE:OCR,
Forum). That deal gives CVS Health national reach in dispensing prescription drugs to assisted living and skilled nursing homes among other care providers. The company expects Omnicare to add about 20 cents to adjusted earnings per share in 2016.
CVS Health also said Wednesday that it had closed its acquisition of retail giant Target Corp.'s in-store pharmacies and clinics, a $1.9 billion deal it had announced in June. CVS Health will integrate and rebrand Target's more than 1,660 pharmacies and approximately 80 clinics over the next six to eight months.
Overall, the company expects 2016 adjusted earnings to range between $5.73 and $5.88 per share. That compares to an initial guidance range that started at $5.68 per share and underwhelmed investors after the company laid it out in October.
Analysts currently expect, on average, earnings of $5.82 per share, according to FactSet.
CVS Health outlined for analysts on Wednesday how business gains and external factors like an increase in the number of people covered by health insurance will help its future growth. CEO Larry Merlo also noted in a webcast of the presentation that a “silver tsunami” of aging U.S. residents also will bring in more business. The number of people age 65 and older is expected to grow from 47.8 million in 2015 to 65.9 million in 2025.
CVS Health runs about 7,900 retail drugstores but draws most of its revenue from its pharmacy benefits management business, which operates prescription drug plans for customers like insurers and employers. The Woonsocket, Rhode Island, company also operates more than 1,000 walk-in clinics in its stores and has been has been polishing its image as a health care services provider while competitors like Wal-Mart (
NYSE:WMT,
Forum), other drugstore chains and grocers do the same thing.
“We remain very optimistic about the opportunities that the evolving health care market is creating for CVS Health,” CVS CEO Larry Merlo said in a statement from the company.
CVS Health said its revised forecast represents growth of 11.25 per cent to 14.25 per cent based on its forecast for this year, which it reaffirmed at a range of $5.14 to $5.18 per share.
CVS Health Corp. also said Wednesday that it will now pay shareholders starting in February a quarterly cash dividend of 42.5 cents per share, up from 35 cents. That adds up to an annual dividend of $1.70 per share. It also bumps the yield, which measures annual payouts against the stock price, to 1.8 per cent from 1.5 per cent based on Tuesday's closing price of $92.59.
Company shares climbed 3.5 per cent, or $3.23, to $95.82 in midday trading Wednesday, while broader indexes rose slightly. The stock reached an all-time high of $113.65 in July, but the share price slumped below $100 after the company announced in October its initial outlook and third-quarter earnings that missed analyst expectations.