Stock falls after CVS lowers ’16 projection

CVS Health shares that hit their highest price three months ago tumbled Friday after the drugstore chain and pharmacy benefits manager surprised Wall Street with a 2016 profit forecast that fell well below expectations.

The Woonsocket, R.I., company also detailed third-quarter earnings that missed analysts’ forecasts.

Shares of CVS Health fell $5.02, or 4.8 percent, to close Friday at $98.78.

CVS executives urged patience Friday after forecasting adjusted 2016 earnings of between $5.68 and $5.88 per share.

Analysts expected, on average, earnings of $5.99 per share, according to FactSet.

CVS leaders said on a conference call with analysts that their company is feeling immediate pressure from health insurers and the government programs Medicare and Medicaid over the reimbursement CVS receives for filling prescriptions. The business gains it is reaping will take time to develop, the company said.

CVS Health operates the nation’s second-largest drugstore chain and one of the biggest pharmacy benefits management businesses.

The company said it has gained some large clients for its pharmacy benefits management business, but it takes time to implement programs, such as Maintenance Choice, that will pull additional profits from that new business. Maintenance Choice allows patients to receive 90-day prescriptions via mail or pick them up at CVS stores for the same price.

“We feel really good about our positioning in the marketplace and our strategy,” Chief Executive Officer Larry Merlo said.

In the third quarter, CVS Health earned $1.24 billion, not counting $10 million in discontinued operations. That compares with $948 million in last year’s third quarter, when the company absorbed a $521 million loss on the early retirement of some debt.

Earnings, adjusted for one-time gains and costs, were $1.28 per share.

That fell 2 cents short of the average analyst expectation, according to Zacks Investment Research.

But revenue grew 10 percent to $38.64 billion, which topped the average analyst forecast for $37.76 billion.

CVS Health runs 7,911 drugstores in 44 states, the District of Columbia and Brazil. Its earnings announcement came a days after larger competitor Walgreens Boots Alliance Inc. announced plans to expand in the United States by adding Rite Aid Corp.’s 4,600

stores to its portfolio of more than 8,000.

CVS Health draws most of its revenue from its pharmacy benefits management business, which runs prescription drug plans for insurers and employers.

That diversity is expected to help counter any additional competitive crunch its retail side may feel from the Walgreens deal. And CVS has been doing some shopping of its own. It is buying the pharmacy and clinic businesses of retail giant Target Corp.