CVS Health's Comeback Is Just Getting Started -- and Its Valuation Still Looks Shockingly Cheap
Written by Prosper Junior Bakiny for The Motley Fool -> CVS Health's financial results are improving due to several initiatives. These efforts could continue to pay off in the short run. CVS Health also has strong long-term prospects and a solid dividend program. CVS Health (
CVS Health's financial results are improving due to several initiatives.
CVS Health also has strong long-term prospects and a solid dividend program.
CVS Health (NYSE: CVS) encountered significant problems after the pandemic. Revenue growth slowed while expenses rose -- squeezing profits and margins -- due to several challenges. However, the pharmacy chain giant has been bouncing back. The stock has climbed by 48% over the past 12 months. The good news is that CVS Health's comeback may be just getting started, and there is plenty of upside ahead for investors willing to be patient.
Will AI create the world's first trillionaire? Our team just released a report on the one little-known company, called an "Indispensable Monopoly" providing the critical technology Nvidia and Intel both need. Continue »
CVS Health faced several problems after the pandemic. For instance, sales of pandemic-related products, such as diagnostic tests, slowed significantly. More importantly, though, CVS Health dealt with rising utilization and costs in its health insurance division, particularly in its Medicare Advantage (MA) business. The company revised its guidance downward several times due to this issue, signaling an uncertain environment. However, over the past year, CVS Health has improved its financial results.
They are still getting better, as the company proved during the first quarter. The healthcare giant's revenue increased by about 6% year over year to $100.4 billion. Its adjusted earnings per share rose to $2.57, up about 14% from the year-ago period. Further, CVS Health increased its EPS guidance for the fiscal year 2026. Considering the company's results came in ahead of analyst estimates, it was a raise-and-beat quarter for CVS Health. But why is the company performing better?
There are several factors. Let's consider two. First, during the first quarter, CVS Health's medical benefit ratio (MBR) dropped to 84.6%, down 2.7% compared to the first quarter of 2025. The MBR measures the percentage of premium revenue insurers spend on members' healthcare costs. A lower MBR means higher profits, so this is good news for CVS Health. Second, CVS Health has improved the efficiency of its insurance business by digitizing the prior authorization process. These efforts, and others, have helped keep costs in check and increase the company's profits.
We have yet to see the full effect of CVS Health's initiatives, and the company will likely double down on various efforts to improve its business. The pharmacy leader had plans to scale back its MA business this year. That could lead to lower overall revenue, but CVS Health wants to focus on profitable growth. That's good news for investors. Beyond the company's short-term outlook, though, long-term investors will find a lot to like with CVS Health.
