CVS Health's Guidance Reset: The Expectation Gap Between Raised EPS and Lower Revenue

The market is braced for a sequential earnings drop. Analysts expect CVS Health to report an adjusted EPS of $0.99 for the fourth quarter, a decline of 16.8% from $1.19 last year. This sets up a clear test: can the company deliver a beat on the bottom line, or will the guidance reset overshadow any quarterly relief?

Yet the stock's massive rally tells the real story of what's already priced in. Shares have surged 55.6% over the past 52 weeks, far outpacing the broader market. That kind of momentum means much of the positive narrative-driven by recent beats and a strong full-year outlook-is likely baked into the share price. The expectation gap now hinges less on the Q4 print itself and more on the forward view.

This dynamic is not new. In October, CVS reported a better-than-expected Q3 adjusted EPS of $1.60 and revenue. The stock still fell almost 2%. The culprit was a $5.7 billion non-cash goodwill impairment charge that overshadowed the top-line beat. That's the classic "sell the news" dynamic in action: even a solid quarterly report can disappoint if the forward guidance or hidden costs reset expectations lower. The market had bought the rumor of continued strength; the reality of a major charge triggered a reset.

For the upcoming report, the setup is similar. The sequential EPS decline is expected, but the real question is whether the company's guidance for the full year-or any forward-looking commentary-can justify the stock's steep run-up. If the forward view is merely steady, the stock may struggle to hold its gains. If it is raised, that could close the expectation gap and spark a new move.

The Guidance Game: A Raised Bar for 2026

The forward view is where the real expectation gap opens. In December, CVS Health didn't just meet whispers; it raised the bar. The company forecast 2026 adjusted profit to be in the range of $7.00 to $7.20 per share, a clear beat against the Street's average estimate of $7.16. This is a classic "beat and raise" move, signaling confidence that the turnaround is gaining traction.

Yet the guidance reset is a two-sided coin. While the profit target is above consensus, the revenue forecast tells a different story. CVS expects total revenue of at least $400 billion next year, which sits below analysts' average estimate of $419.26 billion. This divergence is critical. It suggests the market's future expectations are being reset not on top-line growth, but on the path to profitability. The company is guiding for a lower revenue bar but a higher profit ceiling, implying significant margin expansion ahead.

This sets up a clear trajectory. The company has also committed to a mid-teens Adjusted EPS CAGR through 2028, a long-term target announced at its Investor Day. This strategic goal frames the next three years as a period of accelerated earnings power, powered by returning Aetna to target margins and driving profitability across its other businesses. For the stock, the 2026 guidance is the first major checkpoint on that path.

The bottom line is that the guidance reset has shifted the narrative. The market had priced in a strong 2025, and CVS just raised that bar. Now, the focus is on whether the company can deliver on its 2026 profit beat while navigating the lower revenue expectation. If it does, the mid-teens CAGR target becomes more credible. If it falters, the raised profit forecast could quickly become the new priced-in reality.

The Revenue Reality Check: The Expectation Gap

The expectation gap now has a clear top-line dimension. While CVS raised its profit target for 2026, it simultaneously set a revenue forecast that sits below the Street's average. The company expects total revenue of at least $400 billion next year, a figure that falls short of analysts' average estimate of $419.26 billion. This divergence is the core tension: the market may be pricing in higher growth than the company itself is projecting for the near term.

This gap suggests the market's forward view is being reset not on revenue, but on profitability. The company's strategy, unveiled at its Investor Day, is built on driving future top-line growth through "Engagement as a Service" and technology to improve consumer experiences. These initiatives are designed to build long-term engagement and open new revenue streams. Yet, they are not yet reflected in the 2026 top-line target. The guidance implies the near-term focus is on executing the turnaround and margin expansion, with the payoff from these strategic bets likely to materialize later in the multi-year plan.

The bottom line is that the revenue guidance acts as a reality check. For a stock that has rallied on momentum, a lower-than-expected revenue forecast can create pressure, even as profit targets are raised. It signals that the company sees meaningful headwinds or a deliberate slowdown in growth for next year, prioritizing earnings power over top-line expansion. The market will need to decide whether to accept this lower growth bar or if the strategic investments in engagement will eventually close the gap.

The Aetna Engine: A Driver for the Raised EPS Guidance

The optimistic EPS outlook is not a guess. It is being driven by a clear operational success within the Aetna business. The key metric is the quality of its Medicare Advantage membership. Over 81 percent of Aetna's Medicare Advantage members are in 2026 plans rated 4 stars or higher by the government. This is a critical driver for profitability and retention.

Why does this matter for the guidance divergence? High Star Ratings directly translate to financial incentives from Medicare. Plans with higher ratings receive bonus payments, which flow straight to the bottom line. More importantly, they are a powerful retention tool. Members in top-rated plans are far less likely to switch to a competitor during the annual enrollment period. This stability allows Aetna to manage its cost base more predictably and scale its operations efficiently.

This integration success is the engine behind the raised profit forecast. It shows CVS Health is executing on its turnaround plan to return Aetna to target margins. The company can now guide for a higher profit ceiling-$7.00 to $7.20 per share for 2026-because it has tangible proof that its core insurance business is becoming more profitable. The lower revenue expectation, in contrast, reflects a deliberate focus on this margin expansion over pure top-line growth in the near term.

The bottom line is that the guidance reset is a bet on operational excellence. The market is being asked to accept a lower growth bar for 2026 because the company has demonstrated it can generate more earnings from each member it retains. The Aetna engine is running hot, and that is what justifies the raised EPS guidance.

Catalysts and Risks: What to Watch

The expectation gap between raised profit and lower revenue guidance will be confirmed or contradicted by specific forward signals. Management's commentary on the path to profitability is the first key data point. The market needs to hear how the company plans to deliver a $7.00 to $7.20 per share profit target while revenue lags consensus. This will reveal whether the strategy is truly about margin expansion or if there are hidden growth drivers not yet reflected in the numbers.

The second critical watch item is any update to the 2026 revenue target or details on the early traction of the new "Engagement as a Service" platform. The guidance reset assumes a deliberate focus on earnings over growth. If management provides evidence that these strategic bets are gaining momentum, it could justify a higher revenue outlook later. Conversely, a lack of progress here would validate the conservative top-line forecast.

The key risk is a misalignment between the raised EPS guidance and actual revenue performance. If revenue growth accelerates, the raised profit target could be seen as conservative, sparking a new rally. But if execution is strong and revenue meets or beats the $400 billion floor, the lower target could be a positive surprise, further validating the profitability focus. The market will be watching for any shift in this balance.