CVS Earnings: Ongoing Margin Improvement at Medical Insurer Boosts Shares

Key Morningstar Metrics for CVS Health

• Fair Value Estimate
  : $105.00
• Morningstar Rating
  : ★★★★
• Morningstar Economic Moat Rating
  : None
• Morningstar Uncertainty Rating
  : High

What We Thought of CVS Health’s Earnings

CVS Health CVS reported first-quarter results that included 6% revenue growth, 12% adjusted operating income growth, and adjusted EPS growth of 14%. Management also raised its full-year guidance. Shares rallied over 6% in midday trading on May 6 on this news.

Why it matters: Margin improvement in the medical insurance operations is materially boosting profits and cash flows at CVS at an even faster pace than management expected a quarter ago.

• The medical insurance operations delivered 53% adjusted operating profit growth in the quarter, primarily due to a 270-basis-point improvement in its medical cost ratio on better performance in its government-sponsored programs and exiting the challenging individual exchange business.
• While its other major segments were a drag on profit growth in the quarter, that medical insurance margin improvement was enough for management to boost its 2026 outlook for adjusted EPS to $7.30-$7.50 from $7.00-$7.20 and operating cash flow to at least $9.5 billion from at least $9.0 billion.

The bottom line: We are raising our fair value estimate to $105 per share from $97 to reflect these improving 2026 margins, a recent Medicare Advantage settlement that was lower than we expected, and cash flows generated since our last valuation change. Shares remain in moderately undervalued territory.

• However, even considering ongoing efforts to increase margins, our no-moat rating on CVS reflects weak economic profitability expected through the next few years, although CVS does look on the strong end of that rating’s spectrum.
• Also, we continue to see elevated regulatory risk at CVS, reflected in our High Uncertainty Rating, although a recent MA risk assessment settlement and pharmacy benefit manager business model changes to improve transparency are mitigating some of these risks.