Solid CVS Health Corp (CVS) Earnings Disappoint Investors

earningsJay Taylor:  From my perspective, CVS Health (NYSE:CVS) is doing everything right.

The company is making smart deals, establishing an increasingly dominant retail health brand and setting itself up for a promising future.

Just this week we saw the second-quarter CVS earnings report, which I thought included solid results. The market reaction to the report was lackluster, with the stock down nearly 5% soon after it opened for trading on Tuesday. It ended the day down 2.4%.

Frankly, I’m not too sure what was so disappointing to the market.

Guidance Change?

On the one hand, the company did technically lower its full-year earnings guidance. In the commentary that accompanied the earnings announcement the company adjusted its full-year EPS guidance from a range of $5.08 to $5.19 per share to a new EPS guidance range of $5.11 to $5.18.

Sure, the company did technically lower the top-end of its guidance range from $5.19 to $5.18 per share. But, more importantly to me, it also raised its low-end from $5.08 to $5.11 per share.

Even then, we’re still only talking about 2015.

If you own CVS Health stock because you’re expecting the company to wow investors in 2015 I think your investment thesis is a bit misguided.

Look to the Long Term

Owning CVS Health today is about getting in now before the company really starts to reap the rewards of its recent acquisitions. It’s about getting in now and benefiting from the dividend growth that the company’s new-and-improved cash-generating machine will almost surely drive.

Consider that even if CVS Health’s full year earnings per share comes in at the low end of its new range – $5.11 per share – it would be a huge increase over its 2014 EPS of $3.96. In fact, CVS only grew its EPS by 5.3% between 2013 and 2014.

Achieving EPS of $5.11 per share in 2015 would mean an increase of 30% from 2014 to 2015.

Not only do we see double-digit EPS growth in the current environment, we’re also seeing huge demographic trends that should further propel the companies businesses and, in turn, drive the stock higher.

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