CVS stock (NYSE: CVS) is trending higher following impressive Q1 results. The company exceeded consensus estimates with adjusted earnings of $2.25 per share on revenue of $94.59 billion, compared to projections of $1.63 and $93.35 billion, respectively.
A key highlight was the improvement in CVS’s medical benefit ratio, which decreased to 87.3% from 90.4% year-over-year. This performance stands in contrast to UnitedHealth, which reported an increase in its ratio during the latest quarter. A lower ratio indicates the company collected more in premiums than it paid in benefits, enhancing profitability.
This positive development is particularly significant as health insurance stocks have recently underperformed due to rising medical costs. If CVS continues to improve profitability, it should strengthen the stock’s medium-term outlook.
Additionally, CVS raised its full-year earnings guidance from $5.75-$6.00 per share to $6.00-$6.20 per share. Given these factors—the Q1 earnings beat, declining medical benefits ratio, and upward revision in outlook—should investors buy CVS stock now? We believe so. Despite some concerns surrounding the company, its recent performance combined with its notably low current valuation supports this recommendation.
Our analysis of CVS Health across Growth, Profitability, Financial Stability, and Downturn Resilience parameters indicates that while the company shows weak operating performance and financial condition, these factors are already reflected in its low valuation.
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How Does CVS Health’s Valuation Look vs. The S&P 500?
Going by what you pay per dollar of sales or profit, CVS stock looks cheap compared to the broader market.
- CVS Health has a price-to-sales (P/S) ratio of 0.2 vs. a figure of 2.8 for the S&P 500
- Additionally, the company’s price-to-free cash flow (P/FCF) ratio is 9.0 compared to 17.6 for S&P 500
- And, it has a price-to-earnings (P/E) ratio of 17.2 vs. the benchmark’s 24.5
How Have CVS Health’s Revenues Grown Over Recent Years?
CVS Health’s Revenues have grown marginally over recent years.
- CVS Health has seen its top line grow at an average rate of 8.5% over the last 3 years (vs. increase of 6.2% for S&P 500)
- Also, its quarterly revenues grew 7% to $95 Bil in the most recent quarter from $88 Bil a year ago (vs. 4.9% improvement for S&P 500)
How Profitable Is CVS Health?
CVS Health’s profit margins are considerably worse than most companies in the Trefis coverage universe.
Does CVS Health Look Financially Stable?
CVS Health’s balance sheet looks very weak.
- CVS Health’s Debt figure was $77 Bil at the end of the most recent quarter, while its market capitalization is $84 Bil (as of 4/30/2025). This implies a very poor Debt-to-Equity Ratio of 92% (vs. 21.5% for S&P 500). [Note: A lower Debt-to-Equity Ratio is desirable]
- Cash (including cash equivalents) makes up $13 Bil of the $255 Bil in Total Assets for CVS Health. This yields a poor Cash-to-Assets Ratio of 4.9% (vs. 15.0% for S&P 500)
How Resilient Is CVS Stock During A Downturn?
CVS stock has fared worse than the benchmark S&P 500 index during some of the recent downturns. Worried about the impact of a market crash on CVS stock? Our dashboard How Low Can CVS Health Stock Go In A Market Crash? has a detailed analysis of how the stock performed during and after previous market crashes.
Inflation Shock (2022)
- CVS stock fell 41.2% from a high of $110.83 on 8 February 2022 to $65.17 on 31 August 2023, vs. a peak-to-trough decline of 25.4% for the S&P 500
- The stock is yet to recover to its pre-Crisis high
- The highest the stock has reached since then is $81.42 on 7 January 2024 and currently trades at around $70
Covid Pandemic (2020)
- CVS stock fell 31.2% from a high of $76.05 on 16 January 2020 to $52.30 on 16 March 2020, vs. a peak-to-trough decline of 33.9% for the S&P 500
- The stock fully recovered to its pre-Crisis peak by 11 January 2021
Global Financial Crisis (2008)
- CVS stock fell 45.6% from a high of $44.12 on 5 June 2008 to $23.98 on 9 March 2009, vs. a peak-to-trough decline of 56.8% for the S&P 500
- The stock fully recovered to its pre-Crisis peak by 16 February 2012
Putting All The Pieces Together: What It Means For CVS Stock
In summary, CVS Health’s performance across the parameters detailed above are as follows:
- Growth: Neutral
- Profitability: Extremely Weak
- Financial Stability: Extremely Weak
- Downturn Resilience: Weak
- Overall: Very Weak
While CVS has shown weakness across key performance parameters, this is already reflected in its current valuation. It’s important to note that compared to the broader market index, CVS’s profitability may appear low; however, this aligns with the company’s business model, which traditionally operates on thin margins across a large revenue base in both its insurance and pharmacy segments.
The current 2.9% profitability figure represents a significant decrease from the over 5% that CVS maintained a few years ago, a decline primarily attributable to rising medical costs across the industry. However, the latest quarterly medical benefit ratio indicates that CVS is taking effective steps to improve this critical metric, which should positively impact its stock performance moving forward. Overall, despite its recent price increase, we believe CVS stock remains an attractive investment opportunity that is likely to deliver strong long-term returns for investors.
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