CVS Health Q4 Earnings: The Expectation Gap Between a Beat and a Guidance Reset

The market is braced for another CVS earnings beat. For the last four quarters, the company has consistently topped expectations, with an average earnings surprise of 26.5%. This track record has set a high bar. The current Zacks Consensus Estimate for Q4 non-GAAP EPS is $0.99 per share, which implies a 16.8% fall from the year-ago actuals. In other words, even a beat on this lowered bar would still represent a year-over-year decline in profit. The stock's reaction will hinge on whether management can offset this negative sentiment with a forward-looking guide that signals a reset to a more favorable trajectory.

Sell-side consensus calls for Q4 revenue of $103.1 billion, a 5.5% year-over-year increase. This growth target, while modest, is likely already baked into the price. The real test is the guidance for 2026. After a history of beating the whisper number, the expectation gap now is between the reported results and the outlook for what lies ahead. A strong beat on a declining EPS figure may not be enough to rally the shares if the forward view fails to address persistent headwinds, like the elevated utilization environment and medical cost pressures in its Health Care Benefits segment. The market has priced in the beat; it is now waiting to see if CVS can deliver a reason to buy the rumor of a turnaround.

The Guidance Reset: Medicare Advantage and the 2026 Outlook

The primary risk to the stock is a guidance update that fails to bridge the expectation gap created by recent Medicare Advantage news. The market has already punished the shares, with CVS falling by double-digit percentages on the announcement of proposed 2026 payment rates. This sell-off suggests the worst-case scenario is largely priced in. Yet, the company's own 2025 Investor Day set a high bar for the coming year, committing to a mid-teens Adjusted EPS CAGR through 2028. For 2026, that target implies a significant step up from the current consensus, which already expects a decline in EPS. The guidance reset will be judged against this long-term promise.

The setup is a classic tension between near-term pain and long-term promise. While UnitedHealth's experience shows how a weak outlook can follow bad Medicare news, CVS's business mix offers a buffer. Its core pharmacy and PBM segments are less exposed to these payment rates than a pure-play insurer. Still, the guidance for 2026 must now navigate this new reality. If management's update is less pessimistic than the market's current, cautious view-perhaps by anchoring growth to its non-insurance businesses or outlining specific cost actions-it could create a new expectation gap, but in a positive direction.

The bottom line is that a "better than feared" earnings print could still spark a post-earnings rally, but only if the forward view provides a credible path to the mid-teens CAGR target. The stock's recent volatility has baked in the Medicare headwind, but it has not yet baked in a clear answer to the 2026 trajectory. The guidance update is the critical piece that will determine whether the market sees a reset to a lower, more realistic path-or a reaffirmation of the original growth story.

Catalysts and What to Watch: Beyond the Numbers

The market has priced in the beat. The real catalyst for the stock will be the guidance update that follows. Investors need to watch for three specific signals that will determine if the earnings report sparks a rally or gets overshadowed.

First, and most critically, listen for any revision to the 2026 full-year financial guidance relative to the company's mid-teens Adjusted EPS CAGR commitment through 2028. This is the core expectation gap. After a history of beating whispers, the stock's recent volatility has priced in a reset. Management's tone on 2026 must either confirm a lower, more realistic path or provide a credible bridge back to the long-term target. A neutral or cautious update would likely be seen as a failure to address the Medicare headwind, while a reaffirmation with a clear plan could create a new, positive expectation gap.

Second, parse the segment commentary. The Pharmacy & Consumer Wellness segment is expected to show strength, with growth projected at 9.8% in Q4. This is the engine of stability. The key watchpoint is whether management can point to this segment's momentum as a buffer against pressure elsewhere. At the same time, listen for specifics on the Health Care Benefits segment. The market is already pricing in medical cost pressures and elevated utilization, but management's ability to outline concrete actions to mitigate these issues will be telling.

Finally, the tone on 2026 guidance is the key watchpoint. After shares fell by double-digit percentages on the Medicare Advantage news, the market has baked in near-term pain. The guidance update must now navigate this new reality. If management's outlook is less pessimistic than the stock's recent volatility suggests-perhaps by anchoring growth to its non-insurance businesses or outlining specific cost actions-it could spark a relief rally. A tone that is merely cautious or neutral would likely be interpreted as a capitulation to the headwinds, leaving the stock vulnerable. The bottom line is that the numbers are set; the story for 2026 will be told in the words that follow.