CVS Health Corporation CVS reported first-quarter 2016 adjusted earnings per share (EPS) of $1.18, up 3.5% year over year. The adjustment considers certain asset amortization, acquisition-related integration costs and certain legal charges. The quarter‘s EPS was ahead of the Zacks Consensus Estimate by 2 cents and exceeded the company-provided guidance range of $1.14−$1.17.Without the one-time adjustments, reported EPS from continuing operations in the first quarter declined 2.8% year over year to $1.04. CVS Caremark Corporation - Earnings Surprise | FindTheCompany The Quarter Under ReviewNet revenue in the first quarter increased 18.9% year over year to $43.2 billion, beating the Zacks Consensus Estimate of $42.9 billion. The year-over-year improvement came primarily on the back of balanced growth in both the Pharmacy Services and Retail Pharmacy segments.Pharmacy Services revenues increased 20.5% to $28.8 billion in the reported quarter. The segment gained from growth in the specialty pharmacy business and increased volume in pharmacy network claims.Pharmacy network claims processed during the quarter went up 22.6% to 283 million, backed by net new business. Moreover, the continued adoption of Maintenance Choice offerings brought the Mail Choice claims processed to 20.3 million, up 6.6%.Revenues from CVS’ Retail/ LTC improved 18.6% year over year to $20.1 billion, primarily driven by the addition of long-term care (LTC) operations acquired as part of the Omnicare acquisition, the addition of the pharmacies and clinics of Target Corporation that were acquired in Dec 2015, and pharmacy same store sales growth. Same-store sales improved 4.2%, while front-end same-store sales were marginally up 0.7% year over year.Front-end same-store sales were sluggish due to softer customer traffic, partially offset by an increase in basket size. However, the shift of Easter from Apr 2015 to March in 2016 positively affected front store same-store sales by approximately 80 basis points (bps). Pharmacy same-store sales increased 5.5% in the reported quarter. Pharmacy same store sales were negatively affected by approximately 360 bps due to recent generic drug introductions, partially offset by approximately 130 bps from the additional day in 2016 related to the leap year. Moreover, Pharmacy same-store prescription volumes rose 5.9% on a 30-day equivalent basis.The generic dispensing rate (the proportion of all generic prescriptions to total number of prescriptions dispensed) soared 170 bps to reach 85.2% in the Pharmacy Services segment and increased 125 bps to 85.7% in the Retail/LTC segment.Although gross profit rose 9.4% to $6.4 billion, gross margin contracted 136 bps to 15.6%. Total operating margin during the quarter contracted 83 bps to 5% due to a 13.3% increase in operating costs.CVS exited the first quarter of 2016 with cash and cash equivalents and short-term investments of $1.86 billion, as against $2.54 billion at the end of 2015. The quarter’s net cash provided by operating activities was $2.41 billion, up 21.7% from 2015 end.During the first quarter, CVS opened 24 retail drugstores and 24 new retail stores, and closed 5 stores. Further, the company relocated 14 retail drugstores. As of Mar 31, 2016, CVS operated 9,674 retail drugstores, including pharmacies in Target stores in 49 U.S. states, as well as the District of Columbia, Puerto Rico and Brazil.2016 GuidanceCVS Health has reinstated its full-year 2016 expectations. For 2016, CVS Health still expects to deliver adjusted EPS in the range of $5.73–$5.88, representing annualized growth of 11.25%–14.25%. The current Zacks Consensus Estimate for CVS Health is pegged at $5.82 for 2016, within the predicted range.Moreover, the company still expects to deliver free cash flow of $5.9–$6.2 billion, and cash flow from operations of $7.6–$7.9 billion in 2016.CVS Health has also provided its second-quarter 2016 adjusted EPS projection. The company forecasts adjusted EPS in the range of $1.28−$1.31. The current Zacks Consensus Estimate of $1.35 is pegged above the guided range.Our TakeCVS Health posted better-than-expected first-quarter results with both adjusted EPS and revenues exceeding the Zacks Consensus Estimate. The Pharmacy Services segment benefited from growth in the Specialty Pharmacy business while the Retail Pharmacy segment gained from increased same-store sales.We take note of the recently completed Omnicare and Target Pharmacy acquisitions, which are currently undergoing the integration process. According to the company, both the acquisitions are strategic fits. CVS Health expects to benefit with multiple opportunities for driving enterprise value from Omnicare and Target in both the near and long term.CVS Health earlier expected Omnicare to be approximately 20 cents accretive to its 2016 EPS (excluding any transaction and integration costs). The Target Pharmacy acquisition on the other hand should expand CVS Health's customer base, add a new retail channel for its products and augment customer convenience. CVS Health also expects to see market share gain in its specialty pharmacy suite of services with differentiated specialty offerings providing a high level of clinical support to patients.Zacks RankCurrently, the stock carries a Zacks Rank #3 (Hold). Some top-ranked stocks in the broader healthcare sector are Herbalife Ltd. HLF, Walgreens Boots Alliance, Inc. WBA and Boston Scientific Corporation BSX. All the three stocks hold a Zacks Rank #2 (Buy).Want the latest recommendations from Zacks Investment Research? 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