CVS Soars 53% in Q1: Time to Buy the Stock Ahead of Earnings Release?

CVS Health Corporation CVS is scheduled to report first-quarter 2025 results on May 1, before the opening bell.

In the last reported quarter, the company’s adjusted earnings of $1.19 exceeded the Zacks Consensus Estimate by 33.7%. CVS Health beat estimates in three of the trailing four quarters and missed in one, the average earnings surprise being 4.57%. (Find the latest EPS estimates and surprises on Zacks Earnings Calendar).

CVS Health Corporation Price and EPS Surprise

CVS Health Corporation price-eps-surprise | CVS Health Corporation Quote

The Zacks Consensus Estimate for first-quarter revenues is pegged at $92.95 billion, suggesting growth of 5.1% year over year. The consensus estimate for first-quarter earnings is $1.65 per share, implying a 25.9% improvement on a year-over-year basis.

Q1 Estimates for CVS Up 21 Cents in 3 Months

Earnings estimates for CVS Health have risen from $1.44 per share to $1.65 for the first quarter over the past 90 days.

Estimates have been northbound for this drugstore chain and pharmacy benefits manager over the past three months, mostly influenced by the Centers for Medicare & Medicaid Services’ (CMS) announcement of an over 5% increase in Medicare Advantage payments, significantly above the 2.83% increase expected earlier in January. The market is also upbeat about CVS Health’s CEO transition in late 2024. David Joyner, the new CEO, is currently putting in efforts to stabilize Aetna’s operations and bring financial discipline back to the organization.

3 Factors to Focus on Ahead of CVS' Q1 Earnings

A Turnaround at Aetna Expected: Aetna’s underperformance in 2024 was concerning. However, CVS expected benefit redesigns and improved rate negotiations to lead to margin recovery starting from 2025. While utilization trends remained elevated in the fourth quarter of 2024, data showed moderation in inpatient costs, a positive sign for medical cost control.

Overall, CVS Health’s Healthcare Benefits segment is expected to report better results following a challenging fourth quarter marked by elevated medical cost trends and an adjusted operating loss. Although medical membership remained relatively flat at approximately 27.1 million, strategic actions taken across lines of business, such as benefit design changes in Medicare, rate alignment progress in Medicaid and pricing adjustments in the individual exchange market are expected to have positively impacted first-quarter performance. Meanwhile, a deliberate shift in the individual exchange mix toward bronze plans and rationalized membership should have enhanced profitability in this segment.

The Zacks Consensus Estimate for CVS’ Health Care Benefits arm revenues is pegged at $33.66 billion for the first quarter of 2025.

PBM Strength and Drug Cost Management: Caremark, CVS Health’s pharmacy benefit manager (PBM) business, is expected to have continued to play a vital role in offsetting the rising cost of branded drugs during the first quarter, Despite ongoing regulatory scrutiny. CVS earlier highlighted how PBMs negotiate significant savings, pointing to examples like biosimilar conversions that saved clients nearly $1 billion.

In Biosimilar, CVS Health's CostVantage and TrueCost models are being positioned as industry-first solutions to pharmacy pricing opacity. These models now represent over 75% of Caremark’s commercial members. These might have successfully driven affordability in the first quarter by aligning reimbursements with acquisition costs and making rebates visible at the counter.

The Zacks Consensus Estimate for the Health Services arm’s revenues is pegged at $43.36 billion for the first quarter of 2025.

Pharmacy & Consumer Wellness: In the to-be-reported quarter, despite the challenging consumer backdrop, the segment’s performance is expected to have been driven by increased prescription volume and pharmacy drug mix amid continued pharmacy reimbursement pressure and lower front store volumes. Both same-store sales and same-store prescription volumes are expected to have increased year over year in the first quarter of 2024, benefiting CVS’ top line.

However, continued pharmacy reimbursement pressure, the impact of recent generic introductions and lower front store volumes might have dented growth in the first quarter. The company is likely to have benefited from its recently completed three-year store closure initiative and its progress with the ongoing footprint optimization in the first quarter of 2025.

The Zacks Consensus Estimate for the Pharmacy & Consumer Wellness segment is pegged at $31.19 billion for the first quarter of 2025.

CVS Shares Outperform S&P and Peers

During the first quarter of 2025 (ending March 31, 2025), shares of CVS Health rallied 52.8%. The stock has outperformed the S&P 500’s 4.8% dip. The company's direct peers like Herbalife HLF and Walgreens Boots Alliance WBA registered a respective rise of 29% and 19.7% in their stock prices during this period.

Q1 Price Comparison of CVS

Expensive Valuation

From a valuation standpoint, CVS Health’s forward 12-month price-to-earnings (P/E) is 10.56X. This is a significant premium to Walgreens Boots, with its current P/E being 7.17, and Herbalife, whose current P/E is 3.41X. This suggests that investors may be paying a higher price relative to the company's expected earnings growth.

Final Thoughts on CVS

CVS Health’s healthcare benefits segment is expected to have demonstrated sequentially better performance in 2025, banking on a disciplined, profitability-focused strategy that prioritizes sustainable margin recovery despite membership growth. On the pharmacy and care delivery front, CVS is expected to have gained from streamlined operations to unlock value, while capitalizing on growing demand in retail pharmacy and prescription volume growth.

However, the entire retail pharmacy industry is currently grappling with continued pressure from non-reimbursable pharmacy expenses, which is pulling down mass demand for prescription as well as over-the-counter drugs and vaccinations. The company, along with its peers like Walgreens Boots and Herbalife, has been severely affected by this ongoing crisis. To tackle this issue, CVS Health has launched its store closure initiative, which has been denting the company’s revenues.

Moreover, the current stretched valuation suggests that investors may be paying a higher price relative to the company's expected earnings growth. Accordingly, this might not be the ideal time to invest in this Zacks Rank #3 (Hold) stock.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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