CVS Beats 4Q Wall Street Estimates as Aetna Business Stabilizes

After a tumultuous several months that culminated in the ouster of former CEO Karen Lynch, CVS Health Corp.’s fourth-quarter 2024 results beat Wall Street consensus estimates. And while the company reported lower year-over-year operating income, executives said the struggling Aetna business is finally stabilizing. The company’s adjusted earnings per share (EPS) for the fourth quarter came to $1.91, well above the consensus of 91 cents. Medical loss ratio (MLR) was 94.8%, which was lower (better) than the 95.5% guidance. And CVS posted revenue of $97.7 billion, beating the $97.1 billion consensus. “Following solid Q4 results paired with a better-than-expected 2025 outlook we gain confidence that [the numbers] here have bottomed and investors can begin looking out toward multi-year EPS growth on earnings power rebound to $10 of EPS,” Wolfe Research analyst Justin Lake wrote in a Feb. 12 research note. ‘Meaningful Progress’ Made to Strengthen Aetna The revenue for the company’s Health Care Benefits division, which includes insurer Aetna, reported fourth-quarter revenue of $33 billion, a 23% increase over the previous year. This is in stark contrast to the third quarter, during which the segment underperformed due to underestimated Medicare Advantage (MA) costs. During the Feb. 12 earnings call, CEO David Joyner noted that CVS “drove meaningful progress” in improving and strengthening Aetna. The insurer expects to shrink its MA membership by a “high single-digit percentage from year-end 2024” based on benefit design changes made in the name of profitability. “Our deliberate approach to our 2025 Medicare Advantage business, combined with our improved Star Ratings, will improve margins this year and are part of our ongoing commitment to restore this business to target margins of 3% to 5%,” Joyner said. Overall, Aetna’s medical membership of 27.1 million covered lives was “roughly flat” after the individual exchange business began to “modestly decline” in advance of 2025 rate increases, Chief Financial Officer Thomas Cowhey said during the earnings call. The company also is right-sizing its exchange business and expects a membership contraction of about 800,000. Overall, CVS executives expect a contraction of around 1 million members across MA and exchange segments. Aetna’s MLR was up 630 basis points from the prior year quarter. This was driven by higher utilization, the impact of lower Star Ratings for the 2024 payment year and higher acuity in Medicaid after the redetermination period ended. The insurer is working with state partners to align rates with acuity, Cowhey said. “During the quarter, we made additional progress on rate updates, and with over 40% of our book having repriced in early January 2025, we have a line of sight to a mid-4 percentage point rate increase,” he added. Analysts were optimistic about Aetna’s future performance. “Aetna looks well positioned to begin its multi-year margin recovery in 2025 given MA market exits/benefit design/Stars contribution, and Medicaid rate improvements (already up ~4.5% for ~40% of the book repriced),” Leerink Partners analyst Michael Cherny wrote in a Feb. 12 note. Cantor Fitzgerald’s Sarah James wrote that she is “incrementally more confident” that CVS can return to normal MA margins by 2027. “We believe CVS has the right team in place to execute the turnaround of Aetna and navigate a challenging environment on the regulatory and retail front,” she added. Said Wells Fargo analyst Stephen Baxter: “Guidance for 2025 [is] generally as expected with CVS emphasizing importance of setting targets it was confident it could deliver on. MLR favorability in the quarter was a welcome development given [an] uneven stretch of results for CVS. The company will need to continue to show evidence that it has ‘caught up’ on cost trend in 2025…We assume CVS could recover more than half of $1B of exchange losses in 2025 following material repricing and membership declines, but much of that recovery would be offset by pressure on Group Risk margins and enrollment.” Executives Tout Caremark’s CostVantage Model CVS’s Health Services division, which includes Caremark and Oak Street Health, Inc., reported a 4% year-over-year decline in revenue, partly driven by an announced loss of a large client, Centene Corp. The decrease was partially offset by pharmacy drug mix, increased contributions from health care delivery assets and specialty pharmacy growth. Caremark and Cordavis, CVS’s biosimilars division, converted 90% of Humira (adalimumab) patients to its white-label biosimilar in an “unprecedented” launch, Joyner said. He explained that the biosimilar is 80% less than the list price of branded Humira, allowing CVS to offer the drug to patients at no cost, generating almost $1 billion in savings. Joyner also touted CVS’s TrueCost and CostVantage reimbursement models aimed at improving transparency in pharmacy prices and payments. Ninety-eight percent of Caremark plan models pass through rebates to payers, and CVS is aiming to increase that to 100%. More than 75% of commercial payers have two or more elements of TrueCost in their plans. And 100% of commercial prescriptions are contracted through CostVantage, Joyner said. The CostVantage model in CVS pharmacies bases prices on the wholesale acquisition cost plus a defined markup and a dispensing fee. This model is intended to bring cost savings and price transparency to patients and pharmacies, CVS said. All commercial prescriptions are routed through CostVantage, but Prem Shah, executive vice president and group president, said the company hopes to move Medicare and Medicaid to a “CostVantage-like model” in 2026. “We’re trending toward delivering more than $100 million of annualized purchasing improvement across all of our generics to the PBM and payer customers under CVS CostVantage contracts,” Shah added. There is “a lot of cross-subsidization across brands and generics,” Shah said, which “allows us to ensure more stable pharmacy margins and a more durable kind of process as you think about what we do inside of the pharmacy supply chain, which is essentially serving the patients at the counter, for a more predictable margin for every script that we dispense.”