CVS Q3 Deep Dive: Pharmacy Gains, Aetna Turnaround, and PBM Transition Shape Outlook

Diversified healthcare company CVS Health (NYSE:CVS) beat Wall Street’s revenue expectations in Q3 CY2025, with sales up 7.8% year on year to $102.9 billion. Its non-GAAP profit of $1.61 per share was 18.3% above analysts’ consensus estimates.

Is now the time to buy CVS? Find out in our full research report (it’s free for active Edge members).

StockStory’s Take

CVS Health’s third quarter was shaped by strong top-line momentum across its core businesses, notably pharmacy and health insurance, with management attributing results to improved execution in retail pharmacy, market share gains, and early progress on Aetna’s operational turnaround. CEO David Joyner emphasized that CVS’s “diversified business and progress on becoming the most trusted health care company” helped offset reimbursement pressures and challenges in Health Care Delivery. The company’s decision to slow Oak Street Health clinic expansion and focus on closing underperforming clinics also featured prominently, as did continued investment in technology and customer service.

Looking ahead, management’s raised profit outlook reflects expectations for ongoing recovery at Aetna, incremental margin improvement from pharmacy and consumer wellness, and continued evolution of its pharmacy benefit management model. CFO Brian Newman described the company’s approach as “thoughtful and prudent” given persistent medical cost trends and macroeconomic uncertainty. Management also noted that adjustments to contracting and pricing models within the pharmacy benefit business will present near-term headwinds, but believes the TrueCost model and technology investments will support longer-term growth and transparency.

Key Insights from Management’s Remarks

Management cited pharmacy market share gains, Aetna’s Medicare Advantage quality improvements, and disciplined cost actions as key drivers of the quarter. The shift to more transparent PBM pricing and restructuring of clinic operations also had a material impact.

• Retail pharmacy share gains: CVS grew its retail prescription market share to 28.9%, supported by investments in technology, operational improvements, and the integration of assets acquired from Rite Aid. Management highlighted increased script volumes and customer engagement as primary reasons for outperformance in this segment.
• Aetna Medicare Advantage progress: The Aetna business saw substantial improvement in Medicare Advantage star ratings, with over 81% of members in plans rated 4 stars or higher. Management credited cross-enterprise collaboration and focus on benefit design and pricing as central to this turnaround.
• PBM transparency transition: The move to the TrueCost pricing model in the pharmacy benefits management (PBM) business was described as a key strategic shift, intended to increase transparency and align drug costs for clients and consumers. However, management acknowledged near-term headwinds as legacy contracts are renegotiated and market dynamics evolve.
• Clinic footprint rationalization: CVS reduced planned growth for Oak Street Health clinics and closed underperforming locations, aiming to restore Health Care Delivery margins. The company recorded a $5.7 billion goodwill impairment linked to these changes but stressed that value-based care remains integral to its Medicare strategy.
• Front store and immunization trends: Retail front store sales and pharmacy vaccination activity both contributed positively, with increased customer visits and loyalty. Despite industry-wide declines in immunization demand, CVS’s market share in this area expanded, supporting overall same-store sales growth.

Drivers of Future Performance

CVS expects its diversified model, PBM contract transitions, and Aetna’s margin recovery to drive next year’s performance, while remaining attentive to reimbursement pressures and ongoing cost trends.

• Aetna margin improvement: Management anticipates further margin expansion at Aetna, primarily from disciplined Medicare Advantage plan design and exiting the individual exchange business. Repricing opportunities in group business and ongoing Medicaid contract discussions are also expected to contribute.
• PBM contract evolution: The transition to the TrueCost drug pricing model is expected to create near-term profit headwinds as legacy contracts are renegotiated. However, management believes this will enhance transparency and support sustainable growth for the PBM segment over the longer term.
• Retail pharmacy stabilization: Continued rollout of the CostVantage reimbursement model and further technology investments are projected to stabilize retail pharmacy margins. Management expects that as CostVantage adoption broadens, earnings growth will increasingly align with prescription volume growth, despite persistent reimbursement pressure.

Catalysts in Upcoming Quarters

In future quarters, our analysts will closely watch (1) progress on PBM contract transitions and the financial impact of the TrueCost model, (2) continued improvement in Aetna’s Medicare Advantage margins and enrollment, and (3) stabilization in retail pharmacy profitability as CostVantage expands. Updates on Oak Street Health’s operational improvements and integration of Rite Aid assets will also be important to monitor.

CVS Health currently trades at $80.50, down from $82.19 just before the earnings. In the wake of this quarter, is it a buy or sell? See for yourself in our full research report (it’s free for active Edge members).

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