By Josh Nathan-Kazis

After an atrociously bad 2024, CVS Health shares have rallied in 2025. The company's fourth-quarter earnings report on Wednesday will test the optimism behind the surge.

The stock fell more than 40% in 2024 as threats to virtually all of CVS's core businesses piled up. Its insurance division Aetna has been threatened by rising medical spending, Washington policymakers have targeted its pharmacy-benefit manager, and its retail pharmacy chain has been strangled by reimbursement pressures that have cut into the profits they can make on prescription drugs.

CVS has replaced its CEO, and is working to reassure investors. The stock has jumped more than 20% in the first weeks of 2025, though it is still trading well below its 2023 levels.

Whether the gains will last will hinge largely on the guidance the company issues for this year. Analysts anticipate 2025 earnings of $5.86 per share, according to FactSet, from sales of $385.9 billion. They are expecting a 92% medical loss ratio, a vital metric that tracks the proportion of premiums paid out to cover medical costs, compared with 86.2% in 2023, and what they anticipate to have been 93% in 2024.

In a note out Monday, UBS analyst Kevin Caliendo said that investors want to see 2025 earnings-per-share guidance of at least $5.50. "CVS has become a popular buy for active investors, driven by the idea that the company is under earning in its health care benefits segment," he wrote. "The buy side EPS bogey appears set at $5.20 in 2024... and a floor of $5.50 for 2025."

For the fourth quarter of 2024, analysts expect CVS to report earnings of 91 cents a share from sales of $95.4 billion, according to FactSet. They anticipate a medical loss ratio for the quarter of 96%.

This earnings season has been up and down for CVS's peers. Humana's earnings beat Wall Street's estimates on Tuesday, but UnitedHealth Group reported a weaker-than-expected fourth quarter for its insurance division in mid January. That raised concern that problems in Medicare Advantage, the result of a surge in health-care spending by seniors signed up for the program, would persist into 2025. Cigna stock also dropped sharply after its earnings fell short of both management's forecasts and Wall Street's expectations.

Write to Josh Nathan-Kazis at josh.nathan-kazis@barrons.com

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February 11, 2025 16:30 ET (21:30 GMT)

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