CVS Health Stock: Cheap and Under Pressure Ahead of Q4 Earnings

CVS Health Corporation (NYSE: CVS) is set to report its fourth-quarter 2024 earnings on Wednesday, February 12, and investors are closely watching the company's turnaround initiatives and cost trends in its health insurance business. The pharmacy retailer and healthcare services provider has faced higher costs across its Medicare plans, leading to a record high medical loss ratio (MLR) of 95.2% in October. This has put significant pressure on the company's earnings and raised concerns about its future profitability.

CVS Health's valuation is currently at 9.1 times next-12-month earnings, which is closer to its five-year average of 9.5x and below its 10-year average of 11.2x. This suggests that the stock is relatively cheap compared to its historical averages and industry peers. However, the company's shares have had a strong start in 2025, rising about 21% year-to-date, which only partially offsets the 45% decline in 2024. Morgan Stanley analysts have a price target of $63 and an Overweight rating on the stock, indicating potential for further gains as the company executes its turnaround strategy.



CVS Health's management team, led by new CEO David Joyner, has announced major plans for cost cutting, including reducing costs by $2 billion and cutting 2,900 jobs. The company is also planning to close 900 stores over three years, a decision influenced by shifting consumer shopping behaviors and demographic trends. These initiatives are intended to address mounting financial pressure and improve the company's financial performance. However, investors are cautious ahead of the earnings report, as reports from managed care organizations this quarter have shown higher costs and missed MLR targets.



Analysts on average expect a 2025 profit of $5.96 per share, according to data compiled by LSEG. However, peers UnitedHealth and Elevance have warned of elevated costs persisting in 2025. Investors are looking for a 2025 forecast and comments on healthcare demand trends, Medicaid rate adjustments, annual enrollment, and pharmacy business performance. The company's management credibility has been damaged by issuing over-optimistic targets and cutting annual forecasts in the past, so investors are hoping for a change in this quarter's earnings report.

In conclusion, CVS Health stock is relatively cheap compared to its historical averages and industry peers, but investors are cautious ahead of the fourth-quarter earnings report due to higher costs and missed MLR targets in the health insurance business. The company's turnaround initiatives and cost-cutting measures, led by new CEO David Joyner, are intended to address mounting financial pressure and improve profitability. Investors will be closely watching the company's earnings report on Wednesday, February 12, to assess the progress of these initiatives and the potential impact on the company's future performance.