CVS Health raises 2020 earnings guidance as plan to offer wide range of medical services pays off
A CVS Pharmacy store is seen in the Manhattan borough of New York City, New York.

CVS Health reported a better-than-expected 3.5% jump in third-quarter revenue and raised its 2020 earnings guidance on Friday as its plan to remake the drugstore chain into a health services company paid off.

Offering everything from insurance to Covid-19 testing, the health-care company also named a new CEO. Karen Lynch will become CEO on Feb. 1. She is currently executive vice president of CVS Health and president of Aetna, the health insurer that CVS acquired in 2018.

The company's longtime CEO Larry Merlo will step down from the role, but serve on CVS' board of directors.

Shares of the company were up nearly 6% to $64.95 at market close.

CVS has sought to become singular health-care destination, as competitors encroach on its turf by filling prescriptions and selling drugstore items online. The company is redesigning hundreds of its stores to turn them into a one-stop shops with medical services and products, such as blood testing and sleep apnea machines.

By end of year, Merlo said CVS will have about 600 of the HealthHUBs. It currently has nearly 450 of the stores in 30 states. Starting January, it will add in-person behavioral health services at those stores.

On an earnings call, Merlo said the addition of Covid-19 testing is "a very tangible proof point of our strategy coming to life in a very meaningful way."

"If we told you a year ago that to date 6 million people would have gone to their local CVS pharmacy for a diagnostic test related to some virus, I would probably get an eyeball roll," he said. "The reality is that's happened, and it really speaks to the strategy that we've talked about in terms of meeting people where they are."

Here's how the company reported for the quarter ended Sept. 30, compared with what analysts were expecting, based on a survey of analysts by Refinitiv:

Adjusted earnings per share: $1.66 adjusted vs. $1.33 expected

Revenue: $67.06 billion, vs. $66.66 billion expected

On an unadjusted basis, the health-care company and drugstore chain reported fiscal third-quarter net income of $1.22 billion, or 93 cents per share, down from $1.53 billion, or $1.17 per share, a year earlier.

Revenue rose 3.5% to $67.06 billion, from $64.81 billion a year prior. It also outpaced the $66.66 billion expected by analysts.

At the company's drugstores, sales rose in both the pharmacy and the front of the store as customers filled more prescriptions, got Covid-19 tests and filled up bigger baskets of items of over-the-counter items.

Prescriptions filled increased 4.6% on a 30-day equivalent basis in the quarter compared with the prior year. Front store revenues increase 2.7% in the quarter compared with the prior year.

CVS raised its full-year guidance for earnings per share to between $5.60 to $5.70 from $5.16 to $5.29 and its full-year 2020 adjusted earnings per share guidance range to $7.35 to $7.45 from $7.14 to $7.27.

It said its cash flow for the full year would range from $12.75 billion to $13.25 billion, higher than its previous outlook of between $11 billion to $11.5 billion.

The company cautioned that there was still some uncertainty because of the Covid-19 pandemic.

CVS has expanded Covid-19 testing, administered flu shots and prepared for the rollout of the coronavirus vaccine during the pandemic. It has more than 4,000 drive-thru test sites at its pharmacies and has administered more than 6 million tests. The company said it plans to have nearly 1,000 sites for rapid testing by the end of the year.

In mid-October, CVS and its rival Walgreens announced a deal with the government to administer coronavirus vaccines to the elderly and staff in long-term care facilities when they become available.

Since March, CVS has hired about 76,000 full-time, part-time and temporary employees. It has about 300,000 employees.

Last month, it said it planned to add even more workers. It said it would immediately hire 15,000 people — the majority made up of pharmacy technicians — to prepare for an expected increase in Covid-19 and flu cases this fall and winter.