CVS Health (NYSE:CVS) has defied the odds and is up over 50% year-to-date, whereas the broader market has corrected significantly. This stock has been a big laggard since 2022, so the recent turnaround is surprising in the current market environment.
So, what’s driving this resurgence, and can it last?
The stock crashed due to skyrocketing medical costs in its Medicare Advantage plans, which pushed insurance margins into negative territory. Pharmacy reimbursement also pressured margins due to lower drug prices.
Not only that, this company has $82.92 billion of debt on its balance sheet. The massive increase in interest rates has made it difficult to service all that debt, but recent cuts and increasing revenue have helped CVS grapple with that.
The new CEO David Joyner took the helm in October 2024 and continued a $2 billion cost-cutting initiative with store closures and streamlining. He also appointed Steve Nelson (ex-UnitedHealthcare) to lead Aetna and recover margins in Medicare Advantage.
CVS is aggressively repricing plans and optimizing benefits to lift Medicare margins to 3-5% by 2026. This includes reducing enrollment by ~1 million higher-cost members and improving CMS Star Ratings.
The stock turned around as there’s recession-resistant appeal to healthcare stocks like these, and Q4 2024 earnings beat estimates. EPS of $1.19 beat. $0.91 estimates and the 2025 guidance of $5.75-$6 in EPS were also solid.
Now that CVS stock is up 50% year-to-date, I believe the stock has lost most of its value appeal. If you are skeptical of tech stocks and you think that tariffs will continue and spark a recession, you could include CVS stock in a recession-resistant portfolio.
But if you aren’t that pessimistic, it makes little sense to invest in it with so many other buying opportunities around.
