Bank Of America Resets Future Estimates For Cvs Post Earnings

CVS Health’s latest fourth quarter and full year 2025 earnings report, announced on Feb 11, gave investors some respite as they struggled with the government’s payment signals and rising medical costs, keeping them considerably on edge.

In its Q4, the health insurance provider reported $105.7 billion in revenue, up 8.2% year over year, and GAAP diluted EPS of $2.30 and adjusted EPS of $1.09, exceeding expectations. 

For the full year, CVS reported a record $402.1 billion revenue with a GAAP diluted EPS of $2.30 and adjusted EPS of $6.75. The insurance provider also generated $10.6 billion in cash flow from operations.

While not raising its 2026 outlook, CVS reiterated its adjusted EPS guidance range of $7 and $7.20. In terms of guidance, it trimmed its expected cash flow to $9 billion, driven by a shift in certain 2026 payments into late 2025. 

The earnings call was more focused on CVS’s multi-year recovery plan amid growing scrutiny of Medicare Advantage (MA) and pharmacy benefit managers (PBM).

"Our fourth quarter and full-year results demonstrate the progress we are making in transforming the health care experience with our unique collection of businesses. From lowering drug prices to improving navigation of health care, to being the front door of care across our country, we are well-positioned to achieve our ambition to be the most trusted health care company in America." David Joyner, CVS Health President and CEO.

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BofA echoes CVS's growth strategy

CEO David Joyner framed 2025 as a year of “progress for CVS Health” on the earnings call. The year marked organizational repairs aimed at driving the company to improved financial performance. 

In a note shared by Bank of America, the bank argues that CVS has “multiple levers” to keep earnings growing in 2026 and also offset the 2027 MA preliminary rate notice.

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But before we head into the details, let's understand what Medicare Advantage is and how it impacts CVS.

Medicare Advantage is the insurance plan that CVS sells through Aetna and is largely funded by government payments set annually by the Centers for Medicare & Medicaid Services (CMS).

If these payments, however, do not keep pace with inflation or rising medical costs, it immediately affects the premiums consumers (the majority of whom are seniors) pay. 

Meanwhile, the company is forced to either tighten networks, cut benefits, or increase premiums, thereby impacting the carrier's overall growth.

CVS’s earnings call was driven by the 2027 advance rate notice from CMS, which David Joyner, CEO of CVS, noted as not reflective of current trends.

However, CVS remains focused on improving margins in the Medicare business, despite the “disappointing” rate notice.

BofA does not see MA as a prime place of risk for the pharmacy giant, as it sees repricing in group Medicare Advantage and individual MA pricing as a “low-hanging fruit” for margin improvement. 

And as talks are underway and the final rate notice will only come in April, BofA thinks it could be a “catalyst to shares” as it might include better rates.

CVS stock was up 1.7% on Wednesday, adding to its 2% gain this past week. Meanwhile, it has seen a 39% stock gain over the year but remains down 3% year-to-date.

Bullish retail pharmacy sector

CVS highlighted strong business in retail pharmacy, with segment revenue of $37.7 billion in Q4 2025, up from $33.5 billion in Q4 2024, a 12.4% year-over-year increase. 

The adjusted operating income was also up 8.7% at $1.91 billion, and management attributed the gains to CVS’s Rite Aid prescription file acquisitions, which increased its pharmacy drug mix and prescription volume. 

Thus, highlighting the accretion gained from Rite Aid store acquisitions by the pharmaceutical retailer.

Veteran trader Stephen Guilfoyle noted in TheStreetPro that, with total assets amounting to “$253.538 billion, which includes $110.986 billion in assets labeled as either goodwill or other tangibles,” this represents almost 44% of total assets, and he does not “love” it.

Guilfoyle added that while “this is not a strong balance sheet, but it’s not a PepsiCo level train wreck either.”

In pharmacy and health services, CVS posted $51.24 billion Q4 revenue, up 9.0% yoy, and an adjusted operating income of $1.92 billion, up 9.2%. But CVS acknowledged that the ongoing client price improvements did offset some of the benefits it gained from inflation in brand-name drugs and pharmacy drug mix.

In terms of insurance, CVS Aetna reported $36.39 billion in Q4 revenue, up from the $34.96 billion reported in Q4 2024. But it still reported an adjusted operating loss of $676 million, vs. the $439 million loss a year ago. The loss was largely attributed to Medicare Part D seasonality changes related to the Inflation Reduction Act and quarter-specific items. 

CVS ended 2025 with 26.6 million members, down 112,000 from Sept 2025, partially offset by an increase in Commercial ASC membership. Its Medical membership fell by 504,000 year over year, reflecting declines in individual exchange and government product lines. 

BofA's future predictions for CVS

• Reiterated its Buy rating and $95 price target.
• Expects margin improvement in Oak Street with more clinic closures, fewer new openings, and growing patient panels to break even.
• Increased2026 adjusted EPS estimate from $7.13 to $7.17 due to improvements in health care benefits (HCB) and pharmacy & consumer wellness (PCW).
• Lowered 2027 adjusted EPS from $8.23 to $8.21.
• For CVS’s Health Services, BofA increased EBIT from $7.25 billion to $2.28 billion
• For OCW, it increased its EBIT estimate from $6.09 billion to $6.13 billion.
• For HCB, it increased its EBIT estimate from $3.73 billion to $3.74 billion, reflecting “execution on margin improvements in Aetna.”

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