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CVS Earnings: Outlook Trimmed Due to Elevated Medical Utilization In Medicare Advantage Business

We continue to view CVS stock as significantly undervalued.

Key Morningstar Metrics for CVS Health

What We Thought of CVS Health’s Earnings

CVS Health CVS delivered strong fourth-quarter results, but due to spiking medical utilization in its growing Medicare Advantage, or MA, business, the firm trimmed the 2024 outlook that it had just given at its December investor day. This mild guidance adjustment does not change our $103 fair value estimate, and we continue to view CVS stock as significantly undervalued. Shares appear to be rising, based on the belief that pricing on the firm’s outsize MA membership growth in 2024 will not have a more significant effect on its near-term outlook. That’s in contrast to the much steeper projected consequences at MA-focused Humana HUM in 2024, and that difference is probably related to CVS’ more diversified business mix.

CVS turned in better-than-anticipated fourth-quarter results, including 12% revenue growth. However, increasing medical utilization in the company’s medical insurance business constrained adjusted earnings per share growth to just 4%. Aetna, the medical insurer, delivered 5% membership growth on stellar individual exchange growth, decent MA growth despite its weak star ratings, and a high-single-digit decline in Medicaid as redetermination activities continued. With elevated medical utilization in the period, though, the insurance segment’s adjusted operating profit declined 12% year over year, which was the main reason for the trimming of its outlook for 2024.

For 2024, CVS reduced its expected adjusted EPS to at least $8.30 from at least $8.50 at its December investor day. Positively for 2025 profit growth, CVS’ higher MA star ratings should help plan bonus payments, and CVS expects roughly 9%-10% adjusted EPS growth in 2025, higher than its new goal of at least 6% adjusted EPS growth in the long run.

CVS Health Stock Price

Data as of Source: Morningstar Direct.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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About the Author

Julie Utterback

Senior Equity Analyst
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Julie Utterback is a senior equity analyst for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. Within the healthcare industry, she covers medical technology and service companies. She is also the chairperson of the equity research team’s capital allocation methodology.

Utterback joined Morningstar in 2005 as an equity analyst in the healthcare industry. At that time, she covered medical technology companies, including orthopedic device, medical equipment, and cardiac device firms. In 2010, she joined Morningstar's credit research team, initiating coverage of the entire healthcare industry and generally helping the organization expand and maintain its credit coverage across many industries. She held that senior credit analyst role until April 2019, when she returned to the equity team to cover medical technology and service companies.

Prior to joining Morningstar, Utterback was an equity analyst at State Farm Insurance for several years. She holds a bachelor's degree in finance from the University of Illinois Urbana-Champaign. She also holds the Chartered Financial Analyst® designation.

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