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(Reuters) – CVS Health Corp (NYSE:CVS) on Wednesday said its adjusted profit target for 2022 should largely meet Wall Street estimates, as it expects volatile medical costs in its health insurance unit to stabilize after the COVID-19 crisis drove them up this year.
Shares of the company, best-know for its drugstore chain, rose nearly 3% in morning trading, as CVS also raised its 2021 profit forecast.
“We believe that current analyst estimates for 2022 adjusted EPS of approximately $8.20 are within our anticipated initial guidance range,” Chief Financial Officer Shawn Guertin told analysts on a conference call.
CVS in August had hedged a bit on its long-term target for double digit earnings growth for 2022, pointing to uncertainty around medical costs and COVID-19 testing and vaccine demand.
“For retail, we expect that COVID-19 vaccine and testing volume, which is expected to generate over $3 billion of revenue in 2021, will decline significantly in 2022 to 30% to 40% of the volume we administered in 2021,” Guertin said.
But the testing decline will also help drive down costs for CVS’s Aetna (NYSE:AET) health insurance business, he added.
CVS now expects 2021 adjusted earnings per share of $7.90 to $8.00, up from its prior forecast of $7.70 to $7.80.
Health insurers’ medical costs have been in flux since the beginning of the pandemic, as lower medical claims for non-urgent procedures helped control costs, even as COVID-19 testing and care pushed them higher.
That hurt profit for Aetna in the third quarter, but was offset somewhat by vaccine and testing demand, helped by mandates, that drove up retail pharmacy sales.
CVS reported a higher-than-expected medical benefit ratio of 85.8%, as the company saw an uptick in COVID-19 treatment and testing costs driven by the Delta variant surge in August and September. Those costs are expected to continue in the current quarter, but decline next year, CVS said.
Excluding items, the company earned $1.97 per share in the third quarter, above estimates of $1.78, according to IBES data from Refinitiv.
