CVS Health Stock Is Relatively Cheap, Analyst Highlights Cost Trend Pressure Ahead Of Q4 Earnings

Pharmacy retailer CVS Health Inc. CVS is scheduled to report its fourth quarter 2024 earnings on Wednesday, February 12.

Wall Street estimates fourth-quarter adjusted EPS of $0.94 and sales of $97.20 billion, with 2024 adjusted EPS of $5.18 and sales of $371.83 billion.

Morgan Stanley notes that key areas to watch include cost trends, Medicare Advantage enrollment (estimated at 7.3%), and expectations for when and how the Medicare Advantage business might improve.

So far, reports from managed care organizations this quarter have shown higher costs and missed medical loss ratio (MLR) targets, making them cautious ahead of earnings.

Also Read: FTC Says UnitedHealth, CVS, Cigna Make Billions Via PBMs On Specialty Drugs

The medical loss ratio (MLR) is the percentage of insurance premium dollars spent on reimbursement for clinical services and activities to improve healthcare quality.

Last week, UnitedHealth Group UNH reported the fourth-quarter 2024 earnings and reaffirmed 2025 guidance.

One-time revenue factors drove the higher MLR, while core cost trends stayed consistent. Hospital coding and specialty drug expenses impacted core cost trends.

Morgan Stanley notes that CVS shares have had a strong start in 2025, rising about 21% year-to-date, compared to a 2.5% gain for the S&P 500 and a 6% increase for managed care peers. However, this only partially offsets the 45% decline in 2024.

CVS' valuation, at 9.1 times next-12-month earnings, has rebounded from its December 2024 lows and is closer to its five-year average of 9.5x. Still, it remains below its 10-year average of 11.2x and about 2.5x lower than the broader managed care group, suggesting the stock is relatively cheap with potential for further gains as the company executes its turnaround strategy.

Morgan Stanley keeps the price forecast of $63 and an Overweight rating.

Price Action: CVS stock is down 0.07% at $54.25 at the last check on Tuesday.

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