CVS vs. UNH: Which Healthcare Stock is a Better Buy After Q2 Earnings?

CVS Health reported strong Q2 earnings, raising its full-year guidance, while UnitedHealth Group faced challenges with declining earnings and released a cautious outlook. CVS raised its adjusted EPS guidance to $6.30-$6.40, up from $6.00-$6.20, and rolled out a $2 billion cost-saving plan. UnitedHealth missed earnings expectations and issued a weaker profit guidance for the full year. CVS has a Strong Buy rating and UNH has a Moderate Buy rating from analysts.

CVS Health (CVS) reported robust Q2 earnings, with shares rising after an upgrade from Wall Street. The company's revenue grew 8.4% year-on-year to $98.92 billion, exceeding analyst estimates of $94.11 billion. Adjusted EPS of $1.81 beat expectations by 23.9%, and adjusted EBITDA of $4.27 billion was 10.5% higher than estimates. Management attributed the outperformance to operational improvements in its Aetna business and pharmacy operations, driven by technology-driven enhancements and a focus on customer experience. CVS raised its full-year adjusted EPS guidance to $6.35 at the midpoint, a 4.1% increase, and announced a $2 billion cost-saving plan. The company currently trades at $65.50, up from $62.32 just before the earnings.

UnitedHealth Group (UNH), on the other hand, faced challenges with declining earnings and released a cautious outlook. The company's revenue grew 12.9% year-on-year to $111.6 billion, but missed analyst expectations of $111.9 billion. Adjusted EPS of $4.08 fell short of expectations by 8.3%, and adjusted EBITDA of $6.23 billion was 12.6% lower than estimates. UnitedHealth lowered its full-year adjusted EPS guidance to $16 at the midpoint, a 39% decrease. The company's operating margin declined to 4.6% from 8% in the same quarter last year. UnitedHealth currently trades at $262.55, down from $282.12 just before the earnings.

Analysts have given CVS a Strong Buy rating and UNH a Moderate Buy rating. CVS's earnings report highlighted its operational strengths and cost-saving initiatives, while UnitedHealth's report pointed to pricing and operational missteps. Investors will be watching for continued margin recovery and operational improvement in Aetna for CVS, and for stabilization of medical cost trends and margin recovery in UnitedHealth.

References:
[1] https://www.barrons.com/articles/cvs-stock-price-upgrade-44e6429c
[2] https://finance.yahoo.com/news/5-most-interesting-analyst-questions-040544803.html
[3] https://finance.yahoo.com/news/top-5-analyst-questions-unitedhealth-034038698.html