Shares of retail pharmacy chain CVS Health (CVS) ended Wednesday trading on a sad note as the company’s $5.7 billion goodwill impairment charge overshadowed its Wall Street-beating third-quarter results. CVS stock is also trading lower during pre-market on Thursday.
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Goodwill usually represents what a company paid above the fair value for activities such as acquisitions. The charge means that the company no longer sees the “goodwill” on its balance sheet as worth as much as previously thought.
Why the Write-Down?
The charge recognized by CVS Health came from its healthcare delivery segment. Specifically, it came from its businesses such as MinuteClinic, its walk-in and appointment-based care retail clinics for minor health cases, Oak Street Health, its primary care centers for older adults, and Signify Health, which is focused on in-home healthcare delivery.
More importantly, the charge stemmed from the cost of restructuring Oak Street and due to Signify Health’s lower market value, among others. Both services focus on the U.S. government-backed Medicare programs.
On Wednesday, CVS stock dropped by nearly 2% to $80.60 per share at the end of regular trading. It also fell by over 2% to $78.88 during early trading on Thursday.
CVS Health Revenue Reaches ‘Record High’
Despite the impairment charge, CVS Health hit “a record high” of $102.9 billion, up 7.8% year-over-year and exceeding Wall Street’s predicted $98.81 billion. It also reported adjusted earnings of $1.60 per share, surpassing analysts’ $1.37 and growing 18% from the same period last year.
This is even as the company’s Caremark division saw “another strong selling season,” generating almost $6 billion during the quarter. The division manages prescription drug benefits for employers, health plans, and government agencies.
Furthermore, the solid results come despite CVS Health’s Omnicare subsidiary’s ongoing Chapter 11 bankruptcy proceedings in Texas and recent $949 million penalty payment ordered by a U.S. district court after it was found liable for fraudulently billing the U.S. government over several years for medications that were wrongfully prescribed.
CVS Health Expands Business
Looking towards its full fiscal year, CVS Health remains upbeat, raising its earnings guidance. Meanwhile, the healthcare group grew its footprint across the U.S., taking over 63 stores previously owned by Rite Aid and Bartell Drugs. Control of the stores, which are in Idaho, Oregon, and Washington, will enable CVS Health to reach over nine million former customers of the two pharmacy chains.
Is CVS Stock a Good Buy?
On Wall Street, CVS Health’s shares currently boast a Strong Buy rating from analysts, TipRanks data shows. This is based on 18 Buys and one Hold issued by 19 analysts over the past three months.
Moreover, the average CVS price target of $87.50 indicates about 9% upside from the current trading level. Year to date, CVS stock has ballooned nearly 90%, hitting $80.59 per share in after-hours trading on Wednesday.
See more CVS analyst ratings here.