In a year marked by macroeconomic uncertainty and renewed trade tensions that have shaken the equity market, CVS Health CVS has emerged as an unexpected outperformer. After a rough 2024, marked by high utilization at its Aetna insurance unit as well as reimbursement pressure, CVS Health has experienced a dramatic recovery so far in 2025. The stock has become the S&P 500’s top performer, with a year-to-date return exceeding 41%, thereby outperforming all other index members by a significant margin.

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This PBM and pharmacy retail powerhouse has also outperformed its major competitors — Herbalife Ltd. HLF and Walgreens Boots WBA, which registered growth of 23.6% and 14.6%, respectively, during this period.

CVS YTD Price Comparison

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CVS a Safe Choice Amid Macroeconomic Threats

Many market watchers believe that CVS Health’s attractiveness lies in the nature of its business, which has a simultaneous presence in two of the most stable sectors—healthcare and retail. The company operates a diversified business model. It provides a comprehensive portfolio of traditional, voluntary, and consumer-directed health insurance products and services, along with a full suite of pharmacy benefit management (PBM) solutions. Simultaneously, its Pharmacy & Consumer Wellness segment encompasses retail and long-term care pharmacy operations, related pharmacy services and its front-of-store retail business.

The company’s strong track record of stable cash generation has aided it amid the broader market sell-offs impacted by escalating 2025 Trump tariffs. With little reliance on global supply chains and strong revenues generated from essential services, CVS Health offers investors a safer option against inflation and geopolitical risks.

The market is also upbeat about CVS Health’s CEO transition in late 2024. David Joyner, as the new CEO, is currently putting in efforts to stabilize Aetna’s operations and also to bring financial discipline back to the organization.

The market is also upbeat about CVS Health’s recent biosimilar launch with Cordavis. Through the coordinated efforts of Cordavis, Caremark and CVS Specialty, CVS Health has successfully converted more than 90% of eligible Humira patients to a biosimilar priced over 80% below the branded alternative. This aggressive cost-cutting initiative not only enabled zero-dollar out-of-pocket expenses for individual members but also generated nearly $1 billion in client savings —making CVS the only company to drive meaningful biosimilar adoption at scale.

2025 Roadmap Looks Impressive

CVS Health is optimistic regarding its path forward in 2025 and beyond, which involves strengthening its positioning in Medicare Advantage. Management is confident about 2025 pricing, which is based on prudent assumptions for utilization trends. It expects these actions to drive a 100- to 200-basis point margin recovery in 2025 compared to its current baseline performance. This will be the first stage in a three to four-year journey to re-establish the company's target margins of 4 to 5%.

Improved Star Ratings in 2025 might generate a $700 million tailwind, depending on membership retention levels. The rest of the gains in the company’s 2025 margin will be driven by pricing initiatives in an environment where it is experiencing headwinds from an insufficient rate notice and prescription medication coverage changes that raise plan liability significantly. CVS Health will implement material price and benefit design adjustments in 2025, with the impact determined by how cost trends evolve in both 2024 and 2025, as well as how the market responds to those trends.

Furthermore, Signify Health continues to show impressive growth and is building momentum into 2025. CVS Health is progressing with its innovative pharmacy models and biosimilar strategy and is also advancing the integration of healthcare delivery assets. Overall, the company is taking steps to achieve profitable growth in 2025, focusing on a disciplined financial policy to strengthen its balance sheet.

CVS Shares Trading at a Discount

In terms of valuation, CVS Health’s forward 12-month price-to-earnings (P/E) is 10.35X, a discount to the S&P 500’s 18.56X.

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However, the stock is trading at a premium to the company’s competitors — Walgreens Boots Alliance’s average of 7.01X and Herbalife’s 4.40X. This suggests that investors may be paying a higher price relative to the company's expected earnings growth.

Higher Utilization Trend Weighs on CVS Stock

Within its Health Care Benefits segment, CVS Health’s Aetna unit continues to face headwinds from both macroeconomic and internal challenges. In 2024, the Medicare Advantage industry saw elevated service utilization and higher acuity, largely driven by Medicaid redeterminations.

Aetna’s below-target 2024 Star Ratings created a temporary reimbursement shortfall, as CVS underestimated medical costs when pricing Medicare Advantage plans. This, combined with generous benefit offerings, intensified cost pressure despite rapid membership growth.

2026 Rate Update Concerns

CVS Health has expressed concerns that in the proposed 2026 Medicare Advantage advanced rate notice (released in January 2025), the Centers for Medicare & Medicaid Services did not address the unprecedented utilization trend experienced across the industry over the past two years. The company is advocating for a more appropriate rate update, including adjustments for the industry-wide cost trends seen in 2024.

Target Price Reflects Limited Upside

Based on short-term price targets offered by 22 analysts, CVS Health is currently trading just 7.1% below its average Zacks price target.

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Final Take

CVS Health started 2025 on a bright note, backed by strong investor confidence and continued momentum in its Pharmacy and Consumer Wellness segment. The company’s strategic initiatives, including footprint optimization and the introduction of biosimilars, further reinforce its long-term growth trajectory.

However, the increasing utilization trend is weighing on the Medicare Advantage business, leading to a high medical-benefit ratio. Further, the proposed 2026 Medicare Advantage advanced rate seems to be unfavorable for the company’s business. The current stock price remains close to the target, which implies that the room for gains is limited.  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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