CVS shares are up 45% this year — here's why it may be starting to turn its business around

After a gloomy 2024, CVS Health Could turn around.

Some investors seem convinced, especially after the retail drugstore chain had placed a large beat on Wednesday on the win of the fourth quarter and a 2025 wins in line with expectations.

Shares of CFS have now risen more than 45% for the year, in contrast to the most important rival of the Retail Pharmacy company WhaleWhose stock has risen almost 3%. Shares from other insurers UnitedHealth Group And Cigna about 4% and almost 8% have risen respectively.

The cheerful quarterly results can be a sign that there are better days before the CFS- or at least that things might not be as bad as last year.

The shares of the company fell more than 40% in 2024 after the profit estimates had missed for three straight quarters and had withdrawn his annual prediction, largely due to higher than expected medical costs in his insurance unit, together with other issues such as the pressure of the pharmacy allowance.

CVS is not yet out of the forest. The medical costs were less serious in the fourth quarter, but will probably remain increased in 2025, because more seniors come to hospitals and doctor's offices and use more health care benefits.

But some analysts are more optimistic about the ability of the company to navigate through those challenges and reach its full year 2025 adjusted profit views of $ 5.75 to $ 6 per share. CVS has pursued store closures and other cost savings, and the new CEO David Joyner has spent a large part of his first 100 days at the helm at the focus on the insurance unit of the Aetna company.

“The pieces are in place [CVS to return] What a bottom of operational achievements has been, “said Leerink Partners analyst Michael Cherny, who upgraded the shares after the results on Wednesday.

Cantor Fitzgerald -analysts also upgraded the shares of CVS on Wednesday, with reference to “more confidence in a successful change”.

CFS has already taken steps to rights its insurance activities, including plans for the Affordable Care Act, Medicare Advantage and Medicaid, as well as dental and vision. The company left certain unprofitable health plans in 2024 and has increased premiums to register fewer members this year.

In a research memorandum, the analysts of Cantor Fitzgerald said that they are “incrementally more confident” that CFS will improve the margins in its Medicare Advantage Business and returns to “normal levels” by 2027.

CFS has said that it wants to get the Medicare Advantage Business back to a margin of 3% to 5%. At the end of 2024 they were with a range of 4.5% to 5%, said CFO Tom Cowhey during a profit call on Wednesday.

CVs and other insurers such as UnitedHealth Group and Humana have seen the medical costs in the past year, because patients return more Medicare Advantage to hospitals for procedures they delayed during the Pandemie.

Medicare Advantage, a private man -based health insurance plan that has been contracted by Medicare, has long been a motorcycle for growth and profit for insurers. But investors have been worried about the running costs that are linked to those plans, which cover more than half of all Medicare beneficiaries.

To improve the margins, the company is planning to reduce membership of Medicare Advantage with a “high percentage with one figure” from the end of 2024, managers said on Wednesday. Aetna had 4.4 million Medicare Advantage members from December, an increase of 3.5 million the year before, according to the release of the company in the fourth quarter.

In general, CFS leaders said they expect that they would lower by more than 1 million by more than 1 million this year, including 800,000 on the individual market. Patients who lose insurance can register for a new Medicare Advantage plan or participate in traditional Medicare plans.

Aetna also scored better Medicare Advantage Star Ratings for the 2025 payment year, which should increase federal payments in 2026. These crucial assessments help patients compare the quality of health and medicines for Medicare and to determine how much an insurer receives in bonus payments from the Centers for Medicare & Medicaid Services.

In the profit of profit, Joyner said that the company insists on higher payment rates from the government for Medicare Advantage. He said that the proposed rates for 2026 do not take higher medical costs into account in the past year.

The BIDEN administration in January suggested increasing the reimbursements of Medicare Advantage by 2.2% in 2026, an increase in the 0.2% decrease in rates for this year. But Cantor analysts also said they expect that the Medicare Advantage refund percentage could rise, which would make a definitive increase of 2% to 2.8% outlined.

“We assume an improving speed environment … maintaining star reasons, and [medical] Costs of trends that are not higher than 2024 levels, “the analysts wrote.

It is difficult to predict what medical costs will look like in the insurance sector in 2025. But this time higher medical costs are built into CVS's guidelines for the full year.

The prospects assume that the trends that the company saw in 2024 will transfer this year despite more favorable medical costs for the company in the fourth quarter, Tanquilut said.

“The early lectures for '25 or at least late '24 is that it is getting better. But they have not assumed that improvement in the 2025 guidelines,” Tanquilut told CNBC. “So it sounds like there is an advantage of their numbers for 2025.

The company also said last year that it would make significant changes to its Medicare Advantage plans for 2025, such as increasing copays and premiums and reducing certain health benefits. That will eliminate the costs that are linked to those benefits and chase patients that they need or want to use.

Other insurers such as Humana, the second largest Medicare Advantage insurer, will clear their plan offer for 2025 in the same way to reduce membership of the lower profit. Humana drops no less than 550,000 Medicare Advantage customers in less profitable markets. But the company has said that people who lose access to their existing plans will probably have another option Humana Medicare Advantage Plan.

Shares of CFS perform better than most of its rivals in health care, both at the insurance and the store for the store. Jefferies analyst Brian Tanquilut said that this is probably due to the unique position of CFS as a company that owns a health insurer, a retail drugstore chain and a pharmacy advantage manager, or PPE, called Carmark.

“I think what they are starting to show, the real synergy … when all three assets,” Tanquilut said.

PBMs such as Caremark are in the center of the supply chain of the drugs in the US, negotiating drug discounts with manufacturers on behalf of insurers, creating lists of preferred drugs that fall under health plans and repay pharmacies for recipes.

That means that Caremark is also at the intersection of CVS's Retail Pharmacy Operation and its AETNA insurer, which increases the competitive advantage of both companies.

In some cases, Caremark sends drug regulations to CVS retail pharmacies. That helped the company's drugstores to get a meaningful market share on prescription compared to his most important rival, Walgreens, who has difficulty working as a largely alone pharmacy activities, Tanquilut said.

Other insurers, such as Cigna and UnitedHealth Group, also have PBMs. But the fact that CFS has a store for the retail trade “pulls it all together and distinguishes it from the others,” Tanquilut added.

That does not necessarily mean that other insurers are left behind. Tanquilut said that UnitedHealthcare, the army of insurance from UnitedHealth Group, is still “best in the classroom” in the industry.

Other insurance companies have their own obstacles apart from higher medical costs, such as Humana Seeing a decrease in its Medicare Advantage Star reviews for the year.

But the story of CFS has been much more complicated than other insurers in view of the business model, and the company could now reach a point on which “all three of his business segments clicks,” Tanquilut said.