CVS Health (CVS) Faces Pivotal Earnings Report Amid Store Closures and Cost Pressures

CVS Health is set to release its fourth-quarter (Q4) earnings results, with investors eagerly awaiting the company’s performance in light of its recent rally from decade lows and ongoing operational headwinds.

While the company’s revenue is expected to climb modestly by 3 percent to $97.09 billion, its profitability remains under scrutiny, as the consensus estimate forecasts a 57 percent year-over-year decline in earnings per share (EPS) to $0.91.

As CVS navigates mounting medical costs, store closures, and shifting consumer behavior, this earnings report will serve as a key indicator of whether its turnaround efforts are materializing or whether more turbulence lies ahead.

CVS Faces Profitability Challenges Amid Structural Shifts

CVS Health has struggled with profit margin compression in recent quarters, missing bottom-line estimates in two of the past three earnings reports. While Q4 expectations are already subdued, a significant aspect of this underperformance stems from higher-than-expected medical costs in its Aetna insurance division.

One concerning trend is that major health insurers, including Humana (HUM), have seen their benefit ratios remain elevated above 90 percent, meaning that a higher percentage of insurance premiums are being used to cover medical costs. Aetna, CVS’s insurance subsidiary, faces a similar issue, which could drag on overall profitability despite revenue growth.

CVS’s Health Services business, which includes its pharmacy benefit management (PBM) segment, is expected to show positive momentum, but the gains may not be enough to offset the drag from its insurance operations. Investors will be particularly focused on how CVS is addressing rising medical costs and whether it has a path to margin recovery in 2025.

Store Closures Continue as Competitive Pressures Intensify

Another key issue affecting CVS Health is its aggressive store closure strategy, which reflects both changing consumer behavior and increased competition in the retail pharmacy sector.

CVS has already closed hundreds of underperforming locations and remains on track to shutter 900 stores by the end of 2024. The company has also announced plans to close additional locations in 2025, reinforcing concerns that brick-and-mortar retail remains under pressure from:

- E-commerce penetration in healthcare, with competitors like Amazon expanding their digital pharmacy offerings.

- Direct competition from Walgreens Boots Alliance (WBA), which is also in the process of closing numerous locations to streamline operations.

- Weak front-store sales, as consumer spending remains pressured in a high-cost environment.

CVS’s front-store business, which sells everything from beauty products to over-the-counter medications, may have seen sluggish demand in Q4 due to ongoing economic uncertainty. If that segment reports weak volume trends, it could reinforce concerns that CVS’s retail footprint continues to contract, requiring a heavier reliance on its healthcare services business for growth.

A Transition Year with Cost Pressures in Focus

CEO David Joyner, who assumed the leadership role in October, will likely face significant scrutiny over how he plans to navigate this transition period. So far, CVS has not been providing formal earnings guidance, which has left investors largely reliant on management’s forward-looking commentary to gauge the company’s outlook.

Some of the key questions analysts will be looking to answer in this earnings call include:

- Will CVS provide more clarity on long-term earnings guidance? Investors will want confirmation that profitability will stabilize in 2025 as cost-cutting initiatives take hold.

- How will CVS address medical cost pressures? If medical claims continue to rise, profitability in Aetna could be further impacted, creating additional earnings volatility.

- Can CVS maintain its dividend payout? The company’s 4.9 percent dividend yield has been attractive to income investors, but there are concerns that cost pressures may force management to reconsider its dividend policy in the future.

Stock Performance: Can CVS Sustain Its Recent Rebound?

After hitting decade lows in December, CVS’s stock has rebounded sharply, with shares approaching key technical resistance at the 200-day moving average of $56.99.

This earnings report will likely determine whether CVS can break out above this resistance level or if shares will retreat toward their previous lows. If the company reports better-than-expected results and offers a clear path toward improved profitability, it could provide the necessary catalyst for a sustained rally. However, if cost pressures remain persistent or revenue growth stalls, the stock could struggle to hold onto recent gains.

Looking Ahead: Key Risks and Catalysts

While CVS remains a major player in the healthcare and retail pharmacy space, it faces significant challenges that could impact its stock performance throughout 2025.

Risks:

- Ongoing medical cost inflation could continue to pressure margins, particularly in the Aetna segment.

- Retail store closures may signal a long-term structural decline, rather than a short-term correction.

- Dividend sustainability could become a concern if profitability remains weak.

Potential Catalysts:

- Strong performance in the Health Services business could help offset insurance headwinds.

- Clearer guidance on cost-cutting initiatives and 2025 profitability targets could reassure investors.

- Better-than-expected consumer spending trends in Q4 could indicate resilience in CVS’s retail operations.

Final Thoughts: CVS at a Crossroads

CVS Health’s Q4 earnings report will be pivotal in determining whether its recent stock rally has legs or if more challenges lie ahead. With investors already bracing for a 57 percent decline in EPS, expectations are relatively muted, meaning that even modestly positive surprises could trigger a rally.

However, if cost pressures remain persistent and management does not provide a clear roadmap for stabilization, CVS shares could face renewed selling pressure. With the stock still trading well below historical highs, the upcoming earnings call will be a crucial moment for the company’s turnaround narrative.