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CVS Health: The Top Performer in Healthcare—Is Now the Time to Buy?

Wesley ParkSunday, May 11, 2025 6:19 pm ET
21min read

The healthcare sector has been a beacon of resilience in 2025, but one stock has surged ahead of the rest: CVS Health (CVS). With a 54.66% year-to-date (YTD) return through May 2025, it’s the third-best-performing large-cap stock and the top healthcare stock in the S&P 500. But is this momentum sustainable? Let’s dive into the data to find out.

Why CVS Is Dominating in 2025

  1. Financial Firepower:
    CVS delivered a 7% revenue jump to $94.6 billion in Q1 2025, with its Health Care Benefits segment—which includes Aetna—growing 8% year-over-year. Operating income surged to $4.6 billion, thanks to cost-cutting and strategic exits (e.g., the individual exchange business). Management raised its 2025 EPS guidance to $6.00–$6.20, a 7% increase from prior projections, signaling confidence in its turnaround.

  2. Margin Recovery and Biosimilars:
    CVS is winning by cutting costs and innovating in drug pricing. Its biosimilar strategy, such as the $1 billion savings from transitioning Humira patients to cheaper alternatives, has been a game-changer. Analysts project a 100–200 basis point margin improvement in 2025 for its healthcare benefits segment, driven by better Medicare Star Ratings and pricing power.

  3. Analyst Backing:
    With 74 hedge funds holding shares, CVS has institutional credibility. Analysts like Michael Cherny (Leerink Partners) and Sarah James (Cantor Fitzgerald) remain bullish, citing stabilized Aetna costs and strategic PBM moves (e.g., preferred formularies).

How It Stacks Up Against Peers

CVS isn’t just outperforming the broader market—it’s crushing healthcare rivals:
- UnitedHealth Group (UNH): A 16.5% YTD gain vs. CVS’s 56%. UNH’s stronger margins and Optum platform offer long-term value, but it’s no match for CVS’s 2025 momentum.
- Walgreens Boots Alliance (WBA): Lagging at 14.6%, WBA struggles with PBM inefficiencies and slower cost-cutting.
- Pfizer (PFE): While undervalued at 42% below fair value, Pfizer’s post-pandemic slump and patent cliffs post-2028 leave it in second gear.

The Sector’s Tailwinds

Healthcare’s 0.68% YTD gain vs. the S&P 500’s -8% proves its defensive strength. Aging populations, rising healthcare spending (projected to hit 20% of GDP by 2032), and innovation in biosimilars and diagnostics are fueling growth. CVS benefits from its diversified model:
- Retail Pharmacies: 10,000+ locations drive steady cash flow.
- PBM: Controls $1 trillion in drug spending.
- Health Plans: 27.1 million medical members in Aetna.

Risks to Watch

No stock is without flaws. CVS faces:
1. Medical Cost Pressures: Aetna’s medical-benefit ratio hit 94.8% in Q1, up from 88.5% in 2024, squeezing margins.
2. Medicare Rate Uncertainty: Proposed 2026 reimbursement rates may not offset rising costs, risking a $700 million tailwind from Star Ratings.
3. Valuation Premium: Trading at 11.25x forward P/E, it’s pricier than Walgreens (7.01x), limiting upside.

Conclusion: Buy Now, but Stay Vigilant

CVS Health is the clear leader in healthcare stocks in 2025. Its 54.66% YTD return, operational turnaround, and strategic moves make it a standout. Analysts’ "Buy" ratings and margin recovery targets (100–200 bps) add to its allure.

However, investors must monitor risks like Aetna’s cost trends and Medicare reimbursement updates. For a balanced portfolio, pair CVS with long-term stalwarts like UnitedHealth or Thermo Fisher (TMO) for diversification.

If you’re bullish on healthcare’s growth—and I am—CVS is worth owning now. But keep an eye on those margins!

Action Alert: For aggressive investors, dip into CVS here. For the cautious, wait for a pullback below $70—a level supported by analyst targets. Either way, this is a stock to watch closely.

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