Shares of CVS Health (NYSE: CVS) were soaring Wednesday after the diversified healthcare giant's fourth-quarter results topped estimates and management offered better-than-expected guidance for 2025.
As of 11:52 a.m. ET, the stock was up 14.5% on the news.
CVS hops over a low bar
CVS, which operates the nation's largest pharmacy chain, health insurer Aetna, and the pharmacy benefit manager Caremark, beat estimates on the top and bottom lines in the fourth quarter. Revenue rose 4.2% to $97.7 billion, compared to the analysts' consensus expectation of $96.9 billion.
Segment-level results were mixed as higher costs due to lost bonus payments from Medicare Advantage plans have weighed on the business. Its medical loss ratio (the percentage of health insurance premiums it pays out as claims) increased from 88.5% to 94.8%, which resulted in an adjusted operating loss of $439 million, down from a $676 million profit in the same quarter a year ago.
Profits were more stable in its two other segments, pharmacy and consumer wellness, but still declined. As a result, adjusted earnings per share declined from $2.12 to $1.19. However, that still topped the consensus estimate of $0.92.
"We have continued to see growth in key areas of our business, including the Pharmacy and Consumer Wellness segment, while we address the industrywide challenges that have impacted our Health Care Benefits segment," said CEO David Joyner, who just completed his first full quarter with the company.
What's next for CVS
In its guidance for 2025, the company forecast that adjusted EPS would rebound to between $5.75 and $6.00, up from $5.42 in 2024, though the midpoint of that range is below the $5.97 analyst consensus.
That guidance indicates that the worst of the headwinds from the changes to Medicare Advantage reimbursements are over, and implies that many of the company's problems are fixable. Based on that guidance, CVS trades at a forward P/E of less than 11, which looks like a good price for an industry leader. If the company can deliver on that guidance, the stock should move higher over the course of the year.
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