Why did CVS underperform in Q1 and Q2 2024?

CVS Health's stock underperformance in Q1 and Q2 2024 can be attributed to several key factors: 1. **Increase in Medical Costs**: Rising medical costs, particularly in the Medicare Advantage business, had a significant impact on CVS's financial outlook. The company cited that medical utilization among older adults in the U.S. increased, leading to higher costs in the fourth quarter of 2023 and an expectation of continued elevation in 2024. 2. **Impact of Medicare Advantage**: The rise in medical costs was primarily driven by the Medicare Advantage business. CVS's Health Care Benefits segment, which includes Aetna, reported a significant increase in revenue due to growth in the Medicare and commercial product lines. However, this was offset by an increase in the medical benefit ratio, which reached 88.5% in the fourth quarter, up from 85.8% in the previous year. The company attributed this rise to its Medicare Advantage business, where medical utilization spiked after a pandemic-era decline in medical procedures. 3. **Impact of COVID-19 Related Deferrals**: The postponement of medical procedures due to the pandemic had an effect on CVS's financial performance. As medical procedures resumed, it led to an increase in costs. Other insurers, such as Humana and UnitedHealth, have also reported an uptick in surgeries. 4. **Strategic Changes and Store Closures**: In June 2024, Walgreens announced a significant round of store closures, which likely had a negative impact on CVS's shares as it affected the pharmacy industry. The announcement coincided with Walgreens' Q3 results, further emphasizing the negative sentiment. 5. **Guidance Cuts and Analyst Ratings**: CVS's stock performance was also influenced by the company's guidance cuts. The company lowered its adjusted EPS forecast for 2024, citing the potential for medical costs to be elevated. This led to a decrease in the company's full-year adjusted EPS guidance, from at least $8.50 to at least $8.30, which disappointed investors. Analysts responded to the guidance cuts and the underperformance in Q1, Q2 2024, downgrading CVS Health from a "buy" rating to a "hold" rating, further impacting the stock's performance. In summary, CVS Health's underperformance in Q1 and Q2 2024 can be attributed to a combination of rising medical costs, particularly in the Medicare Advantage business, the impact of COVID-19 related deferrals, strategic changes and store closures, and guidance cuts. These factors, either directly or indirectly, affected the company's financial performance and stock performance.