CVS Health Corp Earnings - Q4 2025 Analysis & Highlights
CVS Health reported strong Q4 2025 results with significant progress across its diversified healthcare business, while addressing challenges in Medicare Advantage reimbursement rates and navigating evolving pharmacy benefit manager regulations.
Key Financial Results
Full year 2025 revenue exceeded $400 billion, with Q4 2025 revenue of over $105 billion, representing an increase of over 8% year-over-year.
Full year 2025 adjusted earnings per share (EPS) of $6.75, exceeding initial expectations by approximately 15%, with Q4 2025 adjusted EPS of $1.09.
Operating cash flow of $10.6 billion in 2025, meaningfully outperforming initial expectations, with Q4 2025 operating cash flow of approximately $3.4 billion.
Q4 2025 adjusted operating income of approximately $2.6 billion, though representing modest declines from the prior year quarter primarily due to expected seasonality changes in the Medicare Part D program.
Aetna business delivered year-over-year adjusted operating income improvement of over $2.6 billion in 2025.
Business Segment Results
Health Care Benefits segment generated over $36 billion in Q4 2025 revenue, an increase of over 10% from the prior year, driven primarily by the government business due to the Inflation Reduction Act's impact on Medicare Part D.
Medical membership ended at approximately 26.6 million members, a slight sequential decline and a decrease of approximately 500,000 members year-over-year, primarily driven by declines in individual exchange and government businesses, partially offset by commercial fee-based membership growth.
Health Care Benefits segment generated an adjusted operating loss of $676 million during Q4 2025, modestly higher than the prior year quarter, driven by Medicare Part D seasonality changes, deterioration in individual exchange risk adjustment position, and flu activity provisions.
Medical benefit ratio (MBR) in Q4 2025 was 94.8%, consistent with the prior year quarter, with full year 2025 MBR of 91.2%, slightly higher than early December expectations due to Medicaid pass-throughs, risk adjustment impacts, and flu provisions.
Health Services segment generated over $51 billion in Q4 2025 revenue, an increase of 9% year-over-year, driven by pharmacy drug mix and brand inflation, partially offset by pharmacy client price improvements.
Health Services segment delivered adjusted operating income of approximately $1.9 billion in Q4 2025, an increase of over 9% from the prior year quarter, primarily driven by improved purchasing economics.
Pharmacy & Consumer Wellness segment generated nearly $38 billion in Q4 2025 revenue, an increase of over 12% versus the prior year quarter, driven by pharmacy drug mix, increased prescription volume, and incremental volume from the Rite Aid transaction.
Pharmacy & Consumer Wellness segment generated adjusted operating income of over $1.9 billion in Q4 2025, an increase of nearly 9% from the prior year quarter, driven by increased prescription volume and favorable drug mix.
Full year 2025 Pharmacy & Consumer Wellness adjusted operating income exceeded $6 billion, an increase of over 4.5% from the prior year.
Retail pharmacy script share grew to over 29% in Q4 2025, supported by superior customer experiences and the Rite Aid transaction contribution.
Same-store pharmacy sales grew over 19% in Q4 2025 compared to the prior year quarter, driven by pharmacy drug mix and a nearly 10% increase in same-store prescription volumes.
Same-store total revenues increased 16% in Q4 2025, with same-store front store sales increasing 50 basis points versus the prior year quarter.
Commercial membership reached approximately 18 million members, the highest level served in the last decade, with better than expected retention and growth driven by innovative products and solutions.
Capital Allocation
Dividends of over $3 billion distributed to shareholders in 2025.
Cash position of approximately $2.8 billion at the parent and unrestricted subsidiaries at year-end 2025.
Leverage ratio of approximately 4 times as of year-end 2025, a meaningful improvement from the prior year, primarily driven by strong financial performance in 2025.
Industry Trends and Dynamics
Branded drug manufacturers continue to increase prices, with brand list price increases outpacing inflation by an average of 4% per year since 2012.
In 2026 alone, branded manufacturers made more than 750 drug price increases, adding $25 billion of costs to the healthcare system with no added value.
Medicare Advantage enrollment now represents more than 50% of seniors, demonstrating the program's growth and importance.
Medicaid business performing in line with expectations in a high-trend environment, with strong rate advocacy execution in 2025.
Medical cost trends remain elevated across all products but were broadly in line with expectations in Q4 2025.
Competitive Landscape
Aetna received the inaugural Press Ganey Health Plan of the Year Award, acknowledging high-quality offerings, technological innovation, and best-in-class experiences delivered to members, partners, and providers.
Aetna has the fewest medical services subject to prior authorization, about half as many as the nearest competitor.
95% of eligible prior authorizations are approved within 24 hours, with many completed instantaneously.
CVS Health generates over $280 billion of annual savings for clients and members through Aetna's network negotiations ($235 billion) and Caremark's negotiations with drug manufacturers ($45 billion).
CVS Pharmacy positioned as the best-run national pharmacy in the country, solidifying its position through service and operational excellence and investments in colleagues and technology.
Caremark's Humira biosimilar strategy achieved 96% adoption of a low-list price biosimilar with more than 80% of members paying $0 out of pocket, creating more than $1.5 billion in savings for clients and members.
Macroeconomic Environment
Healthcare affordability pressures have been escalating for decades, with consumers experiencing growing affordability challenges.
Hospitals and branded pharmaceutical manufacturers continue to raise prices, while CVS Health lowers costs and drives affordability.
High-trend environment persists across Medicaid and other business lines, requiring cautious and prudent approaches.
Growth Opportunities and Strategies
Signify health care delivery business served more than 3.5 million consumers annually, with providers supporting over 500,000 reconnections, including nearly 100,000 urgent escalations.
Oak Street Health represents a relatively small portion of the enterprise, with focus on thoughtfully expanding the number of patients served and positioning for a more sustainable and attractive business over the long term.
TrueCost model announced in December 2023 continues to drive transparency and is expected to accelerate adoption through recent regulatory changes.
CVS Health partnering with the administration as a key pharmacy partner to TrumpRx, helping to enable greater access and affordability of fertility medicines.
Open Engagement Platform announced at Investor Day, leveraging over 185 million consumers engaging with CVS Health annually across 9,000 community pharmacy destinations.
Rite Aid transaction successfully integrated, welcoming 9 million new patients into CVS stores and over 3,500 new colleagues from Rite Aid.
Cost-based reimbursement transition completed across commercial third-party, discount Medicare, and Medicaid lines of business, with cost-based pricing models performing in line with expectations.
Condition-specific bundled prior authorizations being expanded for conditions such as IVF, combining authorizations for both medical care and required drugs.
Financial Guidance and Outlook
Full year 2026 revenue guidance of at least $400 billion.
Full year 2026 adjusted EPS guidance range of $7 to $7.20, reaffirmed from Investor Day in December.
Full year 2026 operating cash flow guidance updated to at least $9 billion, reflecting impact from certain payments shifting from 2026 into late 2025.
Cumulative cash flow expectation across 2025 and 2026 increased by over $1.5 billion when combined with higher 2025 cash flow delivery.
Roughly 55/45 split of earnings expected between first half and second half of 2026.
Medical benefit ratio expected to increase approximately 850 basis points between first quarter and fourth quarter 2026, slightly steeper than initial 2025 expectations.
Medicare Advantage margins expected to improve in 2026 despite disappointing preliminary 2027 rates, with commitment to margin recovery at Aetna unchanged.
CVS Pharmacy established a new trajectory of at least flat earnings annually starting in 2026, reflecting consistent investments in colleagues, technology, and consumer experience.
Long-term annual earnings outlook for Pharmacy & Consumer Wellness revised to at least flat going forward, based on durable underlying drivers of improved performance.
Medicare Advantage Rate Challenges
2027 Medicare Advantage advance rate notice proposed rates do not match the level of medical cost trend in the industry.
CVS Health advocating for more appropriate funding to ensure adequate access and stability of the Medicare Advantage program relied on by more than half of seniors.
Company does not expect the advance rate notice to impact long-term enterprise guidance provided in December during Investor Day.
Aetna exiting recent annual enrollment period with modest contraction, strengthening the business with better geographic and product mix.
Group Medicare Advantage business had 50% of block up for renewal in 2026, with positive execution on rate renewals.
Pharmacy Benefit Manager Regulatory Environment
CVS Health supports legislation that does not impact ability to create competition in the supply chain and supports legislation creating greater transparency for all stakeholders.
Recent regulatory changes impacting the commercial market are manageable, particularly given the timeline for implementation.
Changes closely aligned to core principles of TrueCost model, with CVS Health moving in this direction since announcing TrueCost in December 2023.
Caremark's margins have remained durable as the value delivered is vital to achieving prescription affordability.
PBM value proposition remains intact with CVS Health as the only entity whose sole job is to create competition and negotiate for lower prices on the pharmaceutical supply chain.
