CVS Health Q2 Earnings: A Turning Point for the Company's Future

CVS Health's Q2 earnings will be a referendum on the company's future. The stock trades at $64 per share, similar to its value ten years ago despite significant business changes. The company's shift towards healthcare services and away from traditional pharmacy operations has raised questions about its long-term viability.

CVS Health Corporation (CVS) is poised to release its second-quarter earnings on July 30, 2025, marking a pivotal moment for the company's future. The stock has been gaining investor attention, with shares rallying nearly 50% year-to-date, driven by a series of positive developments.

A key catalyst behind the recent stock performance is the Senate's removal of proposed Medicare Pharmacy Benefit Manager (PBM) limits and cuts to Medicare Advantage in the latest tax bill. This regulatory relief has significantly reduced the overhang for CVS Health and other healthcare insurers [1]. CVS, through its Caremark division, stands to benefit from reduced regulatory pressure, alongside peers like Cigna CI and UnitedHealth UNH.

CVS Health delivered strong first-quarter 2025 results, reporting a 7% year-over-year revenue increase and a sharp jump in adjusted EPS to $2.25 from $1.31 a year earlier. The company also raised its full-year adjusted EPS guidance to a range of $6.00–$6.20, up from $5.75–$6.00, and now expects around $7 billion in cash flow. Growth was broad-based across the company's three business segments: Health Care Benefits, Health Services, and Pharmacy & Consumer Wellness, which grew 8%, 7.9%, and 11.1%, respectively [1].

The company's turnaround after navigating significant challenges in recent years is evident. CVS closed approximately 900 stores between 2022 and 2024 and faced utilization-related pressure within its Aetna health insurance segment. However, the company has recovered much of the lost ground in 2025, thanks to strong strategic execution and improved operational efficiency [1].

Moreover, CVS has secured a new pharmacy benefit manager contract with the California Public Employees’ Retirement System (CalPERS), one of the largest pension funds in the U.S. This five-year contract, which starts in January 2026, was designed to control the rising costs of prescription drugs, a growing concern for CalPERS. CVS Caremark has unseated UnitedHealth's Optum Rx, which had managed CalPERS’ prescription drug benefit since 2017. The financial terms of the contract were not disclosed, but CVS has agreed to put $250 million at risk, contingent on controlling drug costs and improving the health of CalPERS members [2].

Despite these positive developments, the company's stock valuation remains a topic of debate. CVS Health’s forward 12-month price-to-earnings (P/E) ratio is 9.83X, a discount to the S&P 500’s 22.63X. The stock is trading at a premium to Cigna’s P/E of 9.63X but at a discount to UnitedHealth’s 12.85X. The stock's premium over Cigna may be justified by its scale, efficiency, and strategic focus on digital health, AI, and value-based care. Meanwhile, its discount to the S&P 500 offers an attractive entry point for long-term investors seeking stable, growth-oriented healthcare exposure [1].

In conclusion, CVS Health's Q2 earnings will provide insights into the company's ability to maintain its momentum and navigate the challenges it faces. With strong operational momentum, easing regulatory headwinds, and an attractive valuation, CVS Health stands out as a solid investment opportunity ahead of its second-quarter earnings release.

References:
[1] https://finance.yahoo.com/news/cvs-medicare-advantage-strength-buy-190000420.html
[2] https://www.healthcaredive.com/news/cvs-caremark-calpers-pharmacy-benefits-contract-unitedhealth/753124/