What’s Behind The Crash In CVS Stock?
CVS stock plunged 14% on January 27 following the CMS announcement of a meager 0.09% rate increase for 2027, which fell significantly short of investor expectations of 4-6%. CVS’s 14% decline, though steep, was less drastic than the 20%-plus slides at UnitedHealth and Humana. Why? See, CVS is more diversified—they have retail pharmacies (9,000 locations), Pharmacy Benefit Management (CVS Caremark with 87M members), and Aetna (their health insurance arm).
Only about 33% of revenue comes from premiums, so they’re less exposed to Medicare Advantage (MA) pain than HUM, but more exposed than UNH’s Optum-heavy mix. CVS’s retail pharmacy business generates steady cash flow. So while Aetna faces the same margin pressure as UNH and HUM, it’s only part of the story. Still, UNH stock declined more than CVS due to a slight revenue miss in Q4 and guidance projecting its first annual revenue decline since 1989, clubbed with the CMS announcement. Also, see – What Just Happened With UnitedHealth Stock?
The sharp decline experienced by CVS yesterday highlights why diversified portfolios are a more prudent choice for mitigating single-stock risk. Consider the High Quality Portfolio. It has comfortably outperformed its benchmark—a combination of the S&P 500, Russell, and S&P MidCap indexes—and has achieved returns exceeding 105% since its inception. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.
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What’s the current state of the business?
CVS hasn’t reported Q4 2025 yet (scheduled for February 10), but Q3 2025 showed:
- Revenue: $94.6 billion (not meeting full expectations)
- Adjusted EPS: $1.60 (beating estimates of $1.36)
- Aetna’s medical loss ratio: 87.3% (improved from 90.4% in Q3 2024)
Look at CVS’s Financials for more details.
The MLR improvement at Aetna is actually a positive data point—they’ve made progress in stabilizing the insurance business. However, CVS took a massive $5.7 billion goodwill impairment charge in Q3 2025 for Oak Street Health (their clinic acquisition), signaling that the healthcare delivery strategy hasn’t worked as planned.
What’s the outlook?
CVS guidance (from Q3 2025):
- 2025 revenue: >$400 billion
- 2025 adjusted operating income: $14.22B-$14.39B
- 2025 adjusted EPS: $6.55-$6.65
- 2026 revenue: >$400 billion (flat)
- 2026 adjusted operating income: $15.07B-$15.41B (up 6-7%)
- 2026 adjusted EPS: mid-teens growth expected
The company is guiding to margin improvement despite flat revenue, suggesting operational efficiency gains and the Aetna stabilization continuing.
What about Medicare Advantage exposure specifically?
Aetna serves approximately 37 million people across all insurance products. Their Medicare Advantage book is smaller than UNH’s or HUM’s in absolute terms, but still substantial. The 2027 rate proposal will pressure Aetna’s margins, but the question is whether CVS Caremark and retail pharmacy can offset it.
The Oak Street Health problem—how bad is it?
The $5.7 billion goodwill impairment tells you everything. CVS acquired Oak Street Health to integrate primary care with insurance, but it’s not generating the returns expected. Management is now closing 16 Oak Street clinics and “adjusting growth strategy.” This is a write-off of a major strategic bet.
Valuation and profitability outlook
- Current price: $72
- 2026 estimated EPS: $7 (mid-teens growth from 2025’s $6.65)
- Forward P/E: 10.2x
- That’s cheap by historical standards (CVS typically traded at 12-15x). The market is discounting: continued Aetna challenges from the 2027 Medicare rates, execution risk on the Oak Street turnaround, PBM margin pressure from competition and regulatory scrutiny, and integration complexity across retail, PBM, and insurance.
Look at CVS’s Valuation Ratios Comparison for more insight.
Cash flow—is CVS in financial distress?
No. CVS is expected to generate a solid operating cash flow of $7.5-$8.0 billion in 2025 (guidance). They pay a quarterly dividend of $0.665 per share (yield of 3.3%). The balance sheet is leveraged from acquisitions, but manageable.
The investment case—is this better than UNH or HUM?
CVS offers the most diversification but also the most complexity. The 2027 Medicare rate proposal is a headwind, but not existential for CVS like it is for Humana. Related – What’s Happening With Humana Stock?
Investment view: CVS at $72 is pricing in ongoing challenges, but not a disaster. The 10x forward P/E is compelling if you believe management can execute on Aetna stabilization while keeping PBM and retail profitable. However, the track record on healthcare delivery integration has been poor (Oak Street impairment proves this). The 2027 rate uncertainty creates near-term risk, but CVS has more levers to pull than pure-play insurers. For investors seeking exposure to the healthcare sector with less regulatory risk than pure MA plays, CVS is the more balanced choice—and it’s a better pick than HUM and UNH in our view.
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