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CVS Health Sees Q4 Adj. Earnings At Low End Of Range; Issues FY18 Outlook

Drugstore giant CVS Health Corp. (CVS) on Thursday revised its outlook for the fourth quarter of 2017 and said it now expects adjusted earnings at the low end of the previously forecast range. In addition, the company issued its initial outlook for fiscal 2018 and expressed confidence in the execution of its growth strategy.

CVS Health said that combined with the impact from the suspension of share repurchases, offset by a better effective tax rate, it now expects to deliver adjusted consolidated operating profit growth and adjusted earnings per share at the lower end of their respective ranges provided during its third quarter 2017 earnings call.

At that time, the company expected adjusted consolidated operating profit growth of 5.75 percent to 8 percent, and adjusted earnings per share in a range of $1.88 to $1.92.

On average, analysts polled by Thomson Reuters expect the company to report earnings of $1.90 per share for the fourth quarter on revenues of $47.51 billion. Analysts' estimates typically exclude special items.

Further. the company expects to meaningfully benefit in the fourth quarter from the recent Tax Cuts and Jobs Act, but has not included the estimates of these benefits as it is currently assessing the law's impact on its 2017 financial statements.

For full-year 2018, CVS Health said it expects to deliver consolidated net revenue growth in a range of 0.75 percent to 2.5 percent, and adjusted consolidated operating profit growth of 1 percent to 4 percent.

The Street expects the company to earn $6.31 per share for the year on revenues of $191.95 billion.

The company said that strong growth in scripts and claims, continued purchasing efficiencies from its Red Oak venture, and incremental net benefits from the company's streamlining initiative are expected to be beneficial contributors to enterprise growth.

Operating profit growth in 2018 is expected to be unfavorably affected by costs associated with the company's implementation of its contract to provide PBM services to Anthem, Inc. beginning in 2020, as well as the recent divestiture of RxCrossroads.

Together, these two factors will reduce expected adjusted consolidated operating profit growth for the year by approximately 125 basis points.

While the company continues to expect its pending acquisition of Aetna Inc. (AET) to close during the second half of 2018, for guidance purposes only, the acquisition is assumed to close after year-end 2018.

As previously announced, CVS Health suspended share repurchases during the fourth quarter of 2017 due to its pending acquisition of Aetna. Absent the suspension, the company noted that share repurchases in 2018 would have contributed approximately 340 to 610 basis points of growth to adjusted earnings per share.

The company had also previously announced that it would maintain its current annual dividend of $2.00 per share throughout the year.

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