CVS 2016 profit forecast hurt by healthcare plans, Target deal

Fri Oct 30, 2015 11:05am EDT
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By Sruthi Ramakrishnan

(Reuters) - CVS Health Corp (CVS.N: Quote) gave a disappointing profit forecast for 2016, hurt by costs related to the acquisition of Target Corp's pharmacies and as its own pharmacy benefits management (PBM) business expands in low-margin Medicare and Medicaid plans.

The drugstore operator's profit missed analysts' estimates for the first time in six quarters, as its $10-billion Omnicare acquisition failed to offset pressure from lower reimbursement rates and new low-margin generic drugs.

CVS shares were down 4.6 percent at $98.98 in heavy trading on Friday, among the top decliners on the S&P 500 .SPX. They fell as much as 7 percent earlier.

The weak forecast from CVS, the No.2 U.S. drugstore chain by store count, comes in the same week that larger rival Walgreens Boots Alliance Inc (WBA.O: Quote) said it would buy No.3 Rite Aid Corp (RAD.N: Quote) for $9.4 billion.

CVS forecast 2016 adjusted earnings of $5.68-$5.88 per share, including a $4 billion stock buyback plan and a 6 cents per share impact related to the acquisition of Target's (TGT.N: Quote) pharmacies in June.

Analysts on average were expecting a profit of $6.02 per share, according to Thomson Reuters I/B/E/S.

"While no one can complain about a $100 billion behemoth growing EPS 10-14 percent in a challenging environment, expects were clearly somewhat higher given the M&A activity in 2015," Evercore ISI analyst Ross Muken wrote in a note.

CVS said sales at its drugstores were hurt in the third quarter by the introduction of low-margin generic drugs, lower reimbursement rates and its move to stop selling tobacco products last year.   Continued...

People walk outside a CVS store in Pasadena, California, August 3, 2015. REUTERS/Mario Anzuoni