Cvs targets $6.55–$6.65 EPS for 2025 while advancing TrueCost model and pharmacy market share

Earnings Call Insights: CVS Health Corporation (CVS) Q3 2025

MANAGEMENT VIEW

* J. Joyner, President, CEO & Director, opened the call highlighting "another quarter of solid results, once again reflecting the power of our diversified business and progress on becoming the most trusted health care company in America." He announced a third consecutive increase in full-year 2025 adjusted earnings per share guidance to a range of $6.55 to $6.65, up from the previous $6.30 to $6.40.
* Joyner emphasized the Aetna business's recovery, stating the team is "well on the path to ensuring this business is best-in-class" and noted that "over 81% of our Medicare Advantage members will be in plans rated 4 stars or higher with over 63% of them in 4.5 star plans, nearly double the industry average."
* Strategic decisions included the exit from the individual exchange business and acquisition of Rite Aid assets. A $5.7 billion goodwill impairment was recorded in Health Care Delivery, attributed to "tempering Oak Street Health Clinic growth over the next few years."
* Pharmacy Services performance was highlighted, with Joyner stating, "we are strong supporters of President Trump's focus on lowering brand prices in America" and pointing to the TrueCost model as a key driver for future pricing strategy.
* Joyner reported that CVS Pharmacy "delivered solid performance, including pharmacy share gains... our 9,000 pharmacies are the front door to our enterprise."
* Brian Newman, Executive VP & CFO, stated: "Third quarter revenues achieved a new record of nearly $103 billion, an increase of approximately 8% over the prior year quarter driven by revenue growth across all segments."

OUTLOOK

* Management raised full-year 2025 guidance for adjusted EPS to $6.55 to $6.65 and expects full-year total revenues of at least $397 billion.
* The Health Care Benefits segment is projected to deliver full-year adjusted operating income of approximately $2.72 billion at the low end of guidance, with a full-year medical benefit ratio target of approximately 91%.
* Health Services segment full-year adjusted operating income guidance was revised down to at least $7.1 billion, reflecting near-term market dynamics, while Pharmacy & Consumer Wellness segment guidance increased to at least $5.95 billion.
* Cash flow from operations for 2025 is now expected to be in the $7.5 billion to $8 billion range.
* Newman indicated, "after adjusting for these items, we currently expect a reasonable starting point for our 2026 adjusted EPS guidance to reflect mid-teens growth."

FINANCIAL RESULTS

* Adjusted operating income for Q3 was $3.5 billion.
* Adjusted EPS was $1.60.
* Revenues reached nearly $103 billion, up 8% year-over-year.
* Year-to-date cash flow from operations totaled approximately $7.2 billion.
* Health Care Benefits revenue was nearly $36 billion; Health Services generated over $49 billion; Pharmacy & Consumer Wellness exceeded $36 billion in quarterly revenue.
* A $5.7 billion goodwill impairment charge was recognized in Health Care Delivery, linked to slower Oak Street clinic expansion.
* Retail pharmacy script share increased to 28.9%.

Q&A

* Lisa Gill, JPMorgan: Asked about PBM headwinds and the impact of the TrueCost model. Joyner responded that "near-term headwinds is not an implication on the long-term viability of the PBM model." Newman explained that "the mitigations that we had identified...didn't materialize as quickly or have the impact we had initially anticipated."
* Justin Lake, Wolfe Research: Questioned PCW growth drivers and Rite Aid asset benefits. Shah described CVS as "the best running pharmacy in the country" and detailed script growth and market share gains. Newman noted an "8% swing from our initial expectations of down 5%."
* Elizabeth Anderson, Evercore: Sought details on provider liabilities affecting medical benefit ratio. Newman clarified "provider liabilities...dating as far back as 2018...was roughly 50 basis points of the 100" in MBR impact.
* Michael Cherny, Leerink Partners: Inquired about PBM tailwinds and specialty growth. Shah cited "over $6 billion of net new sales for 2026" and highlighted biosimilars and specialty pharmacy performance.
* Eric Percher, Nephron Research: Requested clarification on TrueCost vs. mix-driven PBM pressures. Shah stated, "this is not from TrueCost...the slower growth of GLP-1s...was driving that."
* Andrew Mok, Barclays: Asked about Oak Street recontracting. Newman did not share loss figures but noted "we believe we're getting the Oak Street business in particular on the path to profitability."
* George Hill, Deutsche Bank: Asked if retail earnings growth will align with script growth. Shah outlined progress on CostVantage and targeting "100% of our eligible book by the start of 2026."
* Kevin Caliendo, UBS: Asked about MA margin expansion and enrollment. Nelson stated, "we expect another year of meaningful margin improvement...early signs in AEP is that we're on track to continue that momentum."

SENTIMENT ANALYSIS

* Analysts raised concerns about PBM contract pressures, Oak Street profitability, and the sustainability of pharmacy growth, with a neutral to slightly cautious tone. Questions often focused on visibility into future headwinds and mitigation of recent charges.
* Management maintained a confident and measured tone during prepared remarks, emphasizing execution and momentum. In Q&A, responses were generally detailed and constructive but at times shifted to defensive when addressing PBM headwinds and Oak Street performance, using clarifying phrases like "let me be clear" and "to be clear, we view value-based care as a critical component."
* Compared to the previous quarter, analyst skepticism slightly increased around near-term headwinds, while management's confidence remained steady but with more caution regarding market transitions.

QUARTER-OVER-QUARTER COMPARISON

* Guidance for full-year adjusted EPS was raised from $6.30–$6.40 to $6.55–$6.65.
* Health Services segment guidance was revised down compared to the previous quarter, reflecting PBM market dynamics and contract pressures, while Pharmacy & Consumer Wellness guidance was increased.
* Management recorded a $5.7 billion goodwill impairment in Health Care Delivery, absent in the previous quarter, due to changes in Oak Street clinic growth strategy.
* Pharmacy script share rose from 27.8% to 28.9% quarter-over-quarter.
* Analysts in Q3 focused more on PBM contract transitions, underlying margin drivers, and the sustainability of growth, compared to the prior quarter's emphasis on Aetna recovery and initial CostVantage rollout.
* Management's tone shifted to address more immediate operational challenges, especially in PBM and Health Care Delivery, while sustaining an optimistic outlook for 2026 and beyond.

RISKS AND CONCERNS

* Management highlighted near-term PBM headwinds from market basket structure and client contract transitions, stating that "we've observed a combination in mix of drugs, in utilization patterns that differed from our prior forecast."
* The $5.7 billion goodwill impairment in Health Care Delivery signals ongoing challenges in Oak Street profitability and tempered clinic expansion.
* Elevated medical cost trends remain a point of caution, with specific mention of provider liabilities impacting medical benefit ratio.
* Pharmacy reimbursement pressure continues to affect profitability, though partially offset by volume and market share gains.
* Management is focused on adapting contracting and pricing models, particularly with TrueCost and CostVantage, to address market evolution and align with payer needs.

FINAL TAKEAWAY

CVS Health delivered record Q3 revenue and raised full-year guidance, supported by recovery in Aetna, pharmacy market share gains, and disciplined execution. Near-term pressures in PBM contract transitions and a significant goodwill impairment in Health Care Delivery drove management to adapt strategies and temper Oak Street clinic growth. The company remains confident in its diversified model, expects margin improvement across segments in 2026, and is committed to transparency and innovation, with further strategic updates anticipated at Investor Day in December.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/cvs/earnings/transcripts]

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