CVS Health Earnings: Strong Start in Medicare Advantage Boosts 2025 Outlook

Key Morningstar Metrics for CVS Health

• Fair Value Estimate: $86.00
• Morningstar Rating: ★★★★
• Morningstar Economic Moat Rating: None
• Morningstar Uncertainty Rating: High

What We Thought of CVS Health’s Earnings

In the quarter, CVS Health CVS delivered 7% revenue and 71% adjusted EPS growth, showing progress in Medicare Advantage after a weak prior-year period. For 2025, management raised its adjusted EPS guidance to $6.00-$6.20 from $5.75-$6.00 and operating cash flow guidance by $500 million.

Why it matters: Like other managed care organizations, CVS’ first-quarter results and 2025 outlook differed from that of UnitedHealth UNH, particularly in Medicare Advantage, where the latter is seeing elevated medical utilization relative to expectations and perhaps suffering from a winner’s curse.

• In medical insurance, CVS’ geographic exits and plan design changes in Medicare Advantage appear to be paying off with higher margins, including a much-improved medical cost ratio (87.3% versus 90.4% last year), which helped segment operating profits nearly triple year over year.
• CVS’ other segments showed strength under new management as well. Pharmacy benefit manager and caregiver segment profits grew 18% on mix benefits and better purchasing economics, while the retail pharmacy grew profits 12%, tied to expanding volumes and related cost benefits, despite PBM pressures.

The bottom line: After making mild tweaks to our 2025 assumptions to reflect these strong trends in 2025, we are keeping our $86 fair value estimate intact. CVS shares still appear undervalued even after rising nearly 10% in early trading.

• In our model, we assume significant improvement in CVS’ profits and cash flows over time, including a gradual return to a more normalized $10 billion in free cash flow after a particularly weak year in 2025. where we expect less than $5 billion.
• We recently downgraded our moat rating for CVS to none from narrow, reflecting weak economic profits expected for the foreseeable future due to challenges in medical insurance and the retail stores in particular.