On Wednesday, CVS Health Corp (NYSE:CVS) reported fourth-quarter sales of $97.71 billion, beating the consensus of $97.19 billion.

Total revenues increased 4.2%, driven by growth in the Health Care Benefits and Pharmacy & Consumer Wellness segments, partially offset by a decline in the Health Services segment.

The Medical benefit ratio increased from 88.5% to 94.8% compared to the prior year, driven by increased utilization, the unfavorable impact of the previously disclosed decline in the company’s Medicare Advantage star ratings for the 2024 payment year, and the impact of higher acuity in Medicaid.

Truist analyst noted that CVS Health’s fourth-quarter results were mostly better than expected, and the company provided strong guidance for 2025.

In its business segments, revenue projections for Health Services and Pharmacy & Consumer exceeded expectations. However, the Health Care Benefits (HCB) segment fell short due to lower-than-expected membership growth.

Meanwhile, the medical benefit ratio (MBR) is expected to improve by 1 percentage point year-over-year, reaching at least 91.5%, which aligns with prior estimates and is slightly better than the 92.0% consensus.

Analyst David MacDonald writes CVS expects its Medicare Advantage (MA) margins to improve in 2025 from the negative 4.5% to 5.0% range seen in 2024, though they won’t break even yet. Management reaffirmed their long-term goal of a 3% to 5% margin.

For the overall business, CVS projects Health Care Benefits (HCB) margins to reach 1.5% in 2025, significantly lower than 5%+ in 2023 and 7% in 2022.

Management noted that each percentage point of HCB margin improvement adds about $0.75 to adjusted EPS, implying a $3 to $4 earnings boost if margins return to target levels over time.

CostVantage is gaining traction, with all commercial contracts using the model as of January 1, Truist writes. The company is also developing a cost-based approach for Medicare and Medicaid.

For 2025, revenue is projected to reach at least $134 billion, surpassing the previous estimate of $128 billion, driven by slightly higher prescription volumes (1.77 billion vs. 1.74 billion previously expected). The company sees 2025 as a transition year for CostVantage, with stronger growth potential in the future.

Finally, while leverage remains above the company’s long-term target, Truist expects better operational performance, especially at Aetna, to drive improvement over time.

The analyst maintains the Buy rating with an increased price forecast of $76, up from $60.

Other analyst reactions:

• Leerink Partners upgrades CVS Health to Outperform rating, raising the price forecast to $75.
• Barclays analyst Andrew Mok maintains CVS Health with an Overweight rating, raising the price forecast from $71 to $73.
• Wells Fargo analyst Stephen Baxter maintains the Overweight rating on CVS Health while raising the price forecast from $68 to $73.

Price Action: CVS stock is up 5.77% at $66.97 at the last check on Thursday.

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