CVS Health Earnings: Aetna Margin Improvement Boosts 2026 Outlook

Key Morningstar Metrics for CVS Health

• Fair Value Estimate
  : $110.00
• Morningstar Rating
  : ★★★
• Morningstar Economic Moat Rating
  : None
• Morningstar Uncertainty Rating
  : High

What We Thought of CVS Health’s Earnings

CVS Health CVS reported second-quarter results including 7% revenue growth and over 40% adjusted earnings per share growth to $2.58, above FactSet consensus of $1.85. On these stronger-than-expected results, management raised its 2026 outlook. It also gave initial 2027 commentary.

Why it matters: Shares fell 6% in midday trading on Aug. 5 amid commentary about growing headwinds in its pharmacy benefit manager business for 2027 during a business model transition. We think long-term investors should appreciate the firm’s improving outlook, related to significant margin improvement at its Aetna medical insurer.

• In the quarter, Aetna turned in an 86% year-over-year increase in adjusted operating income, including a 250-basis-point improvement in its medical cost ratio on improved performance in its government business, particularly Medicare Advantage plans.
• Aetna’s strength and solid results from CVS’ other segments helped boost its 2026 outlook as follows: revenue of at least $414 billion (up from at least $405 billion previously), adjusted EPS of $7.90-$8.10 (up from $7.30-$7.50), and operating cash flow of at least $11.5 billion (up from at least $9.5 billion previously).

The bottom line: To reflect this stronger near-term outlook, we are boosting our fair value estimate for no-moat CVS to $110 per share from $105. Shares may fall toward moderately undervalued territory, though, based on our view of this event that differs from the market’s.

• Our new fair value estimate depends on mid-single-digit growth in revenue and low-double-digit growth in both earnings and free cash flow compounded annually through 2030.
• Also, management gave a preliminary 2027 outlook, highlighting that the FactSet consensus of $8.44 of adjusted EPS looks like a reasonable floor. Our updated expectations include moderately higher results in 2027 than consensus, including value-neutral share repurchases that account for the difference in our view versus the team’s 2027 floor view.