CVS Health has announced the appointment of David Joyner as its new chief executive officer, effective this past Thursday. This move comes as the healthcare giant also released a preliminary third-quarter earnings outlook that fell short of Wall Street's expectations. Joyner previously held the position of executive vice president at CVS Health and served as president of CVS Caremark. Following the announcement, CVS shares experienced a significant drop of 8.6% in trading on Friday.
Chairman Roger Farah, who transitions to the role of executive chairman of the board, expressed confidence in Joyner's leadership capabilities saying, 'The board believes this is the right time to make a change, and we are confident that David is the right person to lead our company.' He added that Joyner's extensive understanding of CVS's integrated business will be crucial in navigating the challenges that the healthcare industry currently faces.
Farah is optimistic that Joyner will help expedite necessary operational improvements and enhance the unique value CVS can create. Joyner's appointment comes as he replaces Karen Lynch, who stepped down 'in agreement with the company's board.' In light of these leadership changes, Truist Securities issued a note affirming their buy rating on CVS stock, with a price target set at $76.
The brokerage underscored that Joyner’s vast experience in healthcare services and pharmacy should ensure a seamless transition in leadership. Earlier this month, Glenview Capital revealed they were in 'constructive conversations' with CVS's leadership aiming to boost the organization’s efficiency and governance.
Glenview highlighted the challenges faced by CVS, remarking on the company's underperformance despite having valuable assets across various segments such as medical and pharmacy benefit management, specialty pharmacy, provider services, and drug retail. They expressed concerns regarding CVS's recent investment and actuarial approaches. In terms of financial projections, CVS anticipates adjusted earnings per share (EPS) to fall between $1.05 and $1.10 for the third quarter, contrasting with a consensus EPS estimate of $1.57 on Capital IQ.
A notable negative impact of $0.63 is expected to stem from premium deficiency reserves (PDRs), particularly affecting the Medicare and individual exchange sectors in CVS's health care benefits division. The company believes these reserves will be 'substantially released' in the fourth quarter, positively impacting financial results. On a Generally Accepted Accounting Principles (GAAP) basis, CVS projects its EPS to be between $0.03 and $0.08, which incorporates a restructuring charge of $1.2 billion linked to planned store closures and ongoing cost-reduction initiatives set for 2025.
Chief Financial Officer Thomas Cowhey discussed this during an earnings conference call in August, stating that CVS sees the potential for over $500 million in incremental cost savings in 2025, with an ambitious target of achieving $2 billion in savings over time. CVS expects its medical benefit ratio for the upcoming quarter to reach 95.2%, influenced by a 220-basis-point impact from the PDRs, along with rising medical costs surpassing previous estimates.
The company cautioned investors against relying on earlier guidance provided during the second-quarter 2024 earnings call, in light of ongoing high medical cost pressures in its health care benefits segment. In a previous sweep, CVS revised down its full-year earnings forecasts, having reported a year-over-year decline in second-quarter profits, driven by challenges in its healthcare benefits segment.
The organization is set to release its third-quarter results on November 6..