CVS: Medicare Advantage Margin Recovery Will Drive Earnings Momentum From 2026

The analyst price target for CVS Health has edged higher by about $1 to approximately $92, as analysts point to resilient earnings, improving visibility in Medicare Advantage margins, and a solid Q3 performance as support for modestly stronger long term valuation assumptions.

Analyst Commentary

Research updates highlight a generally constructive view on CVS Health, with multiple firms lifting price targets and emphasizing improved earnings visibility and margin recovery potential over the medium term.

Bullish and cautious perspectives are emerging around the pace and durability of that recovery, particularly within Medicare Advantage and other government programs.

Bullish Takeaways

Bullish analysts point to solid Q3 execution, including an earnings beat and a better than expected medical benefit ratio, as evidence that management is regaining control over medical cost trends.
Rising price targets and fresh Buy initiations are being justified by improved earnings visibility into 2025 and 2026, with models reflecting higher EPS in the near term despite industry headwinds.
Several reports frame Medicare Advantage as a key multiyear growth driver, expecting a margin recovery phase from 2026 that can support multiple expansion and a higher long term valuation framework.
Sector wide rotation into healthcare and managed care is seen as an incremental tailwind, with CVS positioned to benefit from investors seeking defensive growth and recurring cash flows.

Bearish Takeaways

Bearish analysts or more cautious commentators underscore that the underwriting downturn across managed care is the most significant in over a decade and could constrain near term growth and valuation upside.
There is concern that Medicare Advantage margin recovery may be uneven across the industry, raising execution risk around CVS hitting out year EPS targets and sustaining higher returns.
Some research flags a longer and less certain recovery path in Medicaid and the healthcare exchange businesses, which could weigh on consolidated margins and limit multiple re rating.
Model revisions include not only upward adjustments for 2025 EPS but also trims to 2026 expectations, signaling that visibility beyond the next year remains imperfect despite the recent positive momentum.

What's in the News

House Republicans, led by Speaker Mike Johnson, signal opposition to extending enhanced Affordable Care Act subsidies, putting future exchange affordability and insurer membership growth, including for CVS Health plans, at risk of renewed political gridlock (Wall Street Journal).
The White House postpones a planned healthcare proposal that included an extension of Obamacare subsidies, creating short term uncertainty around federal support for exchange premiums that affect CVS Health and peers (MS Now).
A separate White House framework to extend Obamacare subsidies for two years and tighten eligibility is under consideration, aiming to prevent premium spikes for ACA enrollees served by CVS Health and other managed care companies (Politico).
ACA plan members are notified of an expected average 26% premium increase for 2026, raising questions about enrollment retention, subsidy policy and pricing power for insurers such as CVS Health (Wall Street Journal).
Enhanced ACA subsidies emerge as a central bargaining chip in negotiations to end a government shutdown, and the outcome is likely to influence exchange enrollment levels and revenue visibility for CVS Health (Wall Street Journal).

Valuation Changes

The fair value estimate has risen slightly, moving from approximately $91.50 to about $92.40 per share, reflecting modestly stronger long-term assumptions.
The discount rate has increased slightly from roughly 7.18% to about 7.35%, implying a marginally higher required return and risk premium in the valuation model.
Revenue growth has edged up modestly from around 5.53% to approximately 5.55% annually, signaling a slightly more optimistic top-line trajectory.
The net profit margin has decreased marginally from about 1.98% to roughly 1.98% on a rounded basis, indicating essentially stable but very slightly compressed profitability expectations.
The future P/E multiple has risen slightly from about 16.0x to approximately 16.3x, suggesting a small upward adjustment in the market valuation framework applied to forward earnings.

Strong demographic trends and healthcare demand, alongside value-based care expansion, are driving CVS Health's revenue growth and market leadership in healthcare and pharmacy services.
Strategic acquisitions, digital investments, and vertical integration enable operational synergies, improved customer retention, and sustainable margin and earnings growth.
Margin and earnings pressures across core business lines, combined with structural challenges in retail and insurance, threaten sustainable long-term profitability and growth.

Catalysts

About CVS Health

Provides health solutions in the United States.What are the underlying business or industry changes driving this perspective?

The rapidly growing senior population and increased prevalence of chronic diseases are driving sustained growth in demand for CVS Health's prescription services and broader healthcare offerings, as evidenced by significant revenue and prescription volume growth across all segments; these underlying trends are expected to further expand CVS's top-line revenue and market share in coming years.
CVS Health's ongoing digital and technological investments, including streamlined operations, improved customer experience, and expanded digital health platforms, position the company to capitalize on consumer preferences for greater convenience and digital access, thereby strengthening customer retention and boosting net margins over the long term.
Integration of recent and ongoing acquisitions (such as Aetna, Oak Street, and Signify Health) and vertical alignment between insurance, pharmacy, and care delivery provide substantial cross-selling and synergy opportunities, supporting long-term operating margin and earnings growth as margin recovery initiatives gain traction.
Expansion of value-based care models, both internally and through partnerships, aligns CVS Health with the shifting reimbursement environment-rewarding coordinated, preventive care and enabling CVS to benefit from improved clinical outcomes, cost containment, and improved long-term profitability.
Progress on transforming pharmacy reimbursement with models like CVS CostVantage and increasing pharmacy market share (including acquisitions of Rite Aid scripts), combined with sustained pharmacy script growth, are setting the stage for more predictable revenue and a durable operating income base amidst ongoing front-store and reimbursement pressures.

CVS Health Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

Analysts are assuming CVS Health's revenue will grow by 5.0% annually over the next 3 years.
Analysts assume that profit margins will increase from 1.2% today to 1.9% in 3 years time.
Analysts expect earnings to reach $8.3 billion (and earnings per share of $6.85) by about September 2028, up from $4.5 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $10.1 billion in earnings, and the most bearish expecting $3.8 billion.
In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 15.8x on those 2028 earnings, down from 20.1x today. This future PE is lower than the current PE for the US Healthcare industry at 21.0x.
Analysts expect the number of shares outstanding to grow by 0.79% per year for the next 3 years.
To value all of this in today's terms, we will use a discount rate of 7.25%, as per the Simply Wall St company report.

CVS Health Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?

Persistent elevated medical benefit ratios and margin pressure in the Health Care Delivery segment (especially at Oak Street) highlight ongoing challenges to achieving target profitability, which could suppress net margins over the long term.
Continued pharmacy reimbursement pressure across both the retail and PBM businesses presents a structural headwind, potentially leading to stagnant or declining revenue and operating income despite ongoing efforts to stabilize with cost-based models.
Slow, multi-year recovery and repricing cycles in Group Medicare Advantage contracts, with target margins not achievable after a single renewal in many cases, imply prolonged earnings and margin headwinds for the insurance segment.
Front-end retail sales remain structurally challenged by changing consumer behaviors and digital competition; while there is some improvement, secular declines in in-store foot traffic could weigh on long-term retail revenue and profitability.
Elevated medical cost trends and industry-wide pressures-including inflationary wage and labor costs, regulatory shifts (e.g., continued IRA impacts on Part D), and intensified focus on cost containment-threaten both revenue growth and sustainable earnings across CVS's integrated businesses.

Valuation

How have all the factors above been brought together to estimate a fair value?

The analysts have a consensus price target of $82.072 for CVS Health based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $99.0, and the most bearish reporting a price target of just $70.0.
In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $445.1 billion, earnings will come to $8.3 billion, and it would be trading on a PE ratio of 15.8x, assuming you use a discount rate of 7.2%.
Given the current share price of $71.75, the analyst price target of $82.07 is 12.6% higher.
We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.

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Disclaimer

AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

Managed Care Margin Recovery And Healthcare Benefits Will Shape Industry Prospects