Is CVS Moving Closer to Reaching Its Long-Term Low 3X Leverage Goal?

Back in 2021, CVS Health CVS outlined in its earnings presentation its long-term target to bring its leverage ratio — defined as Adjusted Net Debt divided by adjusted earnings before interest, tax, depreciation and amortization (Adjusted EBITDA) — down to a low 3X range. For a company operating in a diversified healthcare industry, a ratio above 3 typically signals greater financial risk due to high debt relative to its earnings. As of the end of March 2025, the ratio was approximately 4.32, a meaningful improvement compared to 4.70 at the end of 2024.

CVS continues to expect its leverage ratio to return to more normalized levels, backed by two factors. The first is the company’s commitment to prudent financial policies, including maintaining its current dividend level while taking steps to maintain and enhance its investment-grade rating. CVS generated approximately $4.6 billion in operating cash flows in the first quarter and returned $840 million to shareholders as dividend. The company recently declared a quarterly dividend of $0.665 cents per share, payable on August 1. Moreover, management does not anticipate conducting any share repurchases in 2025.

The next factor is margin recovery in Aetna, CVS’ insurance arm, which faced challenges throughout last year from elevated medical costs and higher acuity tied to Medicaid redeterminations. CVS Health is making encouraging progress in its multi-year path to return Aetna to its target margins, including simplifying and streamlining the prior authorization process. The company’s Medicaid rate advocacy efforts are tracking in line with annual expectations, aided by efforts to align rates with changes in acuity. Furthermore, Aetna will exit individual exchange businesses in the states where it independently operates Affordable Care Act (ACA) plans in 2026, citing continued underperformance and no clear path to material improvement.

Financial Position Overview for CVS’ Peers

As of March 31, 2025, UnitedHealth Group UNH held liquid and marketable equity securities balances of $79.1 billion, including approximately $30.7 billion of cash and cash equivalents. UnitedHealth Group’s cash flows from operations for the first quarter were $5.5 billion and returned nearly $5 billion to shareholders through dividends and share repurchases. UNH carries debt equivalent to 1.99 times its EBITDA, reflecting low financial leverage.

Cigna Group CI reported a debt-to-capitalization ratio of 43.1% as of March 31 and expects it to be lower at year-end as it prioritizes debt paydown. As of May 1, Cigna Group has repurchased 8.2 million shares for approximately $2.6 billion. Its cash and cash equivalents increased sequentially to $8.33 billion. Backed by a strong balance sheet and cash flow generation, Cigna Group remains committed to a disciplined capital management approach to drive sustainable long-term growth.

CVS’ Price Performance, Valuation and Estimates

Year to date, CVS Health shares have surged 49.2% against the industry’s 2.8% fall.

CVS shares are trading at a forward five-year sales multiple of 0.22 compared to the industry average of 0.39. The stock carries a Value Score of A.

The consensus estimates for the company’s 2025 and 2026 earnings are showing a bullish trend.   

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

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

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

Zacks Investment Research