CVS Stock Rides High Despite Underlying Business Challenges
CVS Health (CVS) has been crowned the winner among its peers in the healthcare industry, with its stock returning +38% over the past year. However, a closer look at its underlying business reveals a sharp disconnect between its financial performance and market expectations.
While CVS's operating margin of 3.4% trails behind that of UnitedHealth (4.8%) and Cigna (3.2%), its revenue growth of 7.4% is solid but not exceptional, with Cigna growing slightly faster at 7.7%. The market's enthusiasm for CVS is rooted in the company's tangible progress within its Aetna insurance division, which has delivered more than $2 billion of year-over-year improvement in adjusted operating income.
The company's management has flagged trouble ahead for 2027 in its pharmacy benefit management (PBM) business, citing deliberate client renewals and market exits by health plan clients. The market seems to be rewarding the strong Aetna recovery while ignoring the projected customer attrition in the PBM segment, which poses a significant headwind to segment earnings.