Executive Summary / Key Takeaways

• CVS Health is undergoing a strategic transformation, leveraging its integrated model across health benefits, pharmacy services, and retail health to drive long-term value and address rising healthcare costs.
• The company delivered strong Q3 2025 results, with total revenues reaching a record $102.87 billion, and raised its full-year 2025 adjusted EPS guidance to $6.55-$6.65, reflecting disciplined execution and a prudent outlook.
• Aetna's recovery is a top priority, showing meaningful margin improvement in Q3 2025, driven by favorable premium deficiency reserves and strong government business performance, with expectations for continued progress into 2026 despite elevated utilization trends.
• Strategic adjustments in Health Care Delivery, including tempering Oak Street Health clinic growth, led to a $5.7 billion goodwill impairment in Q3 2025, but value-based care remains a critical long-term strategy with expected improvements in 2026.
• CVS is leading pharmacy innovation with its TrueCost and CostVantage models, aiming for greater transparency and affordability, and has demonstrated success in biosimilar adoption and GLP-1 access, positioning it for sustained growth in a competitive and evolving market.

The Integrated Healthcare Imperative: CVS Health's Strategic Transformation

CVS Health Corporation stands at the forefront of a dynamic healthcare industry, strategically transforming from a traditional pharmacy and benefits manager into an integrated health solutions powerhouse. The company's overarching ambition is to become "America's most trusted health care company" by enhancing outcomes, expanding access, and improving affordability across a fragmented system. This vision is underpinned by a unique combination of assets: a vast retail footprint of approximately 9,000 pharmacy locations and over 1,000 walk-in and primary care clinics, a leading pharmacy benefits manager (PBM) serving approximately 87 million plan members, and a diversified health benefits provider through Aetna, reaching over 37 million people. This extensive reach and deep connection with 185 million consumers provide CVS Health with unparalleled insights and a distinct competitive advantage.

The company's strategic journey has been marked by significant evolution. From its origins as CVS Caremark Corporation, the company rebranded to CVS Health Corporation in 2014, signaling a broader healthcare commitment. Key acquisitions, such as Omnicare in 2015 and more recently Signify Health and Oak Street Health in 2023, have expanded its capabilities into long-term care pharmacy, health risk assessments, and value-based primary care. These moves are designed to create new sources of value through an integrated model, aiming to increase access to quality care, deliver better health outcomes, and lower overall healthcare costs.

The healthcare landscape is intensely competitive, with major players like UnitedHealth Group (UNH), Cigna (CI), Humana (HUM), and Walgreens Boots Alliance (WBA) vying for market share. CVS Health differentiates itself through its consumer-centric, integrated ecosystem. While UnitedHealth Group excels in comprehensive health insurance and data analytics, CVS's extensive retail network and in-person services offer a qualitative edge in direct consumer engagement and convenience. Against Cigna, CVS's integrated model, combining pharmacy with primary care, provides a more holistic offering. Compared to Humana, which specializes in Medicare, CVS's broader retail and PBM offerings provide a more diversified revenue stream. In the retail pharmacy space, CVS directly competes with Walgreens Boots Alliance, but CVS's MinuteClinic model offers more integrated care options, and its PBM integration provides a key differentiator in comprehensive services.

Technological Edge and Operational Innovation

CVS Health's strategic transformation is deeply intertwined with its technological differentiation and operational innovation. The company leverages integrated digital capabilities and AI-powered recommendations to streamline processes and enhance the consumer experience. The CVS Health app, for instance, provides customers with greater visibility into their healthcare journey, helping to address potential barriers to care and driving a more trusted and integrated experience. AI-powered recommendations enable real-time engagement with members, facilitating better health management and outcomes.

A significant area of technological advancement is the simplification of prior authorization (PA) processes. Aetna's AI-enabled clinical solutions allow nurses to dedicate approximately 90 more minutes per day to direct member interaction. Over 95% of eligible PA requests are approved within 24 hours, with some processed in just a few hours. The company has also introduced a novel approach that bundles multiple PA requests into one, initially deployed in cancer care and slated for expansion to other conditions like musculoskeletal and cardiology services. This innovation reduces administrative burden on providers, expedites treatment, and lessens uncertainty for members.

In its pharmacy operations, CVS Health has made substantial technology investments to enhance efficiency, improve the workforce environment, and transform the operating model to better serve customers. This focus has enabled the company to achieve superior customer experiences and significant operational improvements across its nationwide footprint. The specialty pharmacy business, a critical component of the Health Services segment, utilizes a tech-driven, AI-native platform to ensure seamless patient transitions, particularly for biosimilars, and efficient medication delivery.

CVS Health has also led the market in developing innovative and transparent pricing models. The Cordavis subsidiary, launched to revitalize the biosimilar market, successfully converted over 90% of eligible Humira patients to a biosimilar at a list price more than 80% below branded Humira, generating over $1 billion in savings for clients. This initiative demonstrates the company's ability to create competition and drive affordability.

Furthermore, Caremark's TrueCost model, introduced in late 2023, aims to provide drug pricing transparency by passing through 99% of rebates to clients and enabling patients to see lower costs at the pharmacy counter, including point-of-sale rebates for over 25 million members. Concurrently, CVS Pharmacy's CostVantage model, fully implemented for all commercial scripts dispensed through CVS Pharmacy as of January 1, 2025, ties reimbursement to acquisition cost. This model is designed to remove cross-subsidization and create more stable, predictable margins, with plans to transition government business to cost-based pricing models by 2026.

The company's proactive approach extends to new drug categories like GLP-1s. CVS Health partnered with Novo Nordisk (NVO) to significantly increase access to Wegovy at a more affordable price, including a formulary action to prefer Wegovy for its largest commercial template. CVS Pharmacy is also the first retail pharmacy in the NovoCare network, expanding convenient access. This strategy combines GLP-1s with the CVS weight management program, which has shown participants achieving double-digit percentage weight loss at 12 months, regardless of the drug used. These technological and operational advancements are crucial for CVS Health's competitive moat, contributing to cost reduction, improved outcomes, enhanced market positioning, and long-term growth.

Financial Performance and Strategic Execution

CVS Health's financial performance in the third quarter of 2025 reflected both the strength of its diversified business and the impact of strategic adjustments. Total revenues reached a record high of $102.87 billion, marking a 7.8% increase compared to the prior year quarter. For the nine months ended September 30, 2025, total revenues grew 7.7% to $296.37 billion. Adjusted operating income for Q3 2025 increased significantly by 35.8% to $3.46 billion, contributing to a nine-month adjusted operating income of $11.85 billion. Adjusted earnings per share (EPS) for Q3 2025 stood at $1.60, a 47% increase year-over-year.
However, GAAP net income was impacted by a substantial $3.99 billion net loss in Q3 2025, primarily due to a $5.70 billion goodwill impairment charge related to the Health Care Delivery reporting unit within the Health Services segment. This impairment stemmed from a strategic decision to temper the growth of new Oak Street Health clinics and close certain existing underperforming clinics in 2026, reflecting a revised outlook on the business's growth trajectory. Despite this, the company recorded a $483 million gain on the deconsolidation of Omnicare, LLC, which initiated Chapter 11 bankruptcy proceedings in September 2025.

The Health Care Benefits segment demonstrated a strong recovery. Total revenues increased by $3 billion, or 9.10%, in Q3 2025, largely driven by the Government business and the impact of the Inflation Reduction Act (IRA) on the Medicare Part D program. The Medical Benefit Ratio (MBR) improved to 92.80% from 95.20% in the prior year quarter, benefiting from favorable premium deficiency reserves and strong underlying performance in the Government business. This improvement occurred despite a 100 basis point impact from provider liabilities and worsening individual exchange risk adjustment expectations. Adjusted operating income for the segment saw a substantial increase to $314 million in Q3 2025, compared to an adjusted operating loss of $924 million in the prior year.

The Health Services segment reported a 11.60% increase in total revenues to $49.27 billion in Q3 2025, driven by pharmacy drug mix and brand inflation. However, adjusted operating income for the segment decreased by 7% to $2.05 billion, primarily due to continued pharmacy client price improvements, partially offset by improved purchasing economics. Pharmacy claims processed decreased by 1.80% on a 30-day equivalent basis. The Health Care Delivery business, including Oak Street Health and Signify Health, saw total revenues grow approximately 25% (excluding the exited ACO REACH business), with Oak Street's at-risk membership up 31% year-over-year in Q2 2025.

The Pharmacy & Consumer Wellness segment continued its strong performance, with total revenues increasing 11.70% to $36.21 billion in Q3 2025. This growth was fueled by pharmacy drug mix and increased prescription volume, including incremental volume from the Rite Aid (RAD) prescription file acquisitions, which added 9 million customers. Pharmacy same-store sales grew 16.80%, and the retail pharmacy script share expanded to approximately 28.9%. Adjusted operating income, however, decreased 7.40% to $1.48 billion, primarily due to ongoing pharmacy reimbursement pressure and increased investments in colleagues and capabilities.

From a liquidity perspective, net cash provided by operating activities remained consistent at $7.25 billion for the nine months ended September 30, 2025. The company's long-term debt ratings (BBB by Fitch and S&P, Baa3 by Moody's) are investment grade, and in August 2025, CVS Health issued $4 billion in senior notes to repay existing debt and for general corporate purposes. While the leverage ratio remains above long-term targets, the company is committed to disciplined financial policies and expects to return to more normalized levels as Aetna's margin recovery progresses.

From a liquidity perspective, net cash provided by operating activities remained consistent at $7.25 billion for the nine months ended September 30, 2025.

Outlook, Guidance, and Risk Assessment

CVS Health has demonstrated a commitment to establishing credible commitments, consistently beating and raising expectations for three consecutive quarters in 2025. The company has once again raised its full-year 2025 adjusted EPS guidance to a range of $6.55 to $6.65, up from the previous range of $6.30 to $6.40. Total revenues are now expected to be at least $397 billion. Full-year cash flow from operations is projected to be between $7.5 billion and $8 billion.

Looking ahead to 2026, management anticipates "mid-teens growth" in adjusted EPS, after adjusting for prior year reserve development and other out-of-period items from the 2025 baseline. The Health Care Benefits segment is expected to deliver another year of meaningful margin improvement, driven by continued progress in Medicare Advantage, a disciplined approach to plan design, repricing opportunities in the group business, and a tailwind from the exit of the individual exchange business. For 2026, Aetna expects to exit the annual enrollment period (AEP) roughly flat in its individual Medicare Advantage membership, a testament to its disciplined approach.

In the Health Services segment, improvement is expected in the Health Care Delivery business, primarily from Oak Street Health, with the segment projected to achieve low single-digit adjusted operating income growth. However, the Caremark business is expected to experience modestly lower growth as the company transitions contracts towards drug-level pricing over the next few years. The Pharmacy & Consumer Wellness segment is expected to continue its strong momentum into 2026, with its trajectory improving relative to the long-term expectation of a 5% decline, despite ongoing reimbursement pressure and shifting consumer dynamics.

Despite this positive outlook, several risks warrant close attention. The Health Care Delivery reporting unit, particularly Oak Street Health, faces ongoing challenges from persistent elevated utilization levels. Management has explicitly stated that if forecasts are not met, further goodwill impairment is "reasonably possible in the near term" given that the fair value and carrying value were aligned as of September 30, 2025. The Medicaid business is also experiencing medical cost pressures due to higher acuity following member redeterminations, with uncertainty surrounding the timing of offsetting state rate updates.

The PBM marketplace remains highly competitive and subject to intense regulatory scrutiny. The company continues to share a larger portion of rebates and faces limitations in offering certain pricing structures due to market dynamics and regulations. Litigation, including opioid-related cases and challenges to PBM practices (such as the lawsuit against Arkansas over a law banning PBM ownership of pharmacies), poses ongoing financial and operational risks. Furthermore, potential tariff impacts on the pharmaceutical supply chain and shifts in consumer sentiment towards vaccines, particularly COVID vaccines, are being closely monitored.

Conclusion

CVS Health is executing a profound strategic transformation, leveraging its integrated model and technological prowess to redefine healthcare delivery and affordability in the United States. The company's robust Q3 2025 performance and upwardly revised 2025 guidance underscore the resilience and strategic agility of its diversified businesses, particularly the significant recovery underway in its Aetna segment. While near-term challenges, including the goodwill impairment in Health Care Delivery and ongoing PBM pressures, highlight the complexities of this evolution, CVS's leadership in transparent pricing models like TrueCost and CostVantage, coupled with its innovative approaches to biosimilar adoption and GLP-1 access, position it as a formidable force in the industry.

The commitment to disciplined execution, strategic portfolio management, and continuous innovation forms the bedrock of CVS Health's investment thesis. As the company progresses towards its 2026 targets, including meaningful margin improvement in Aetna and sustained growth across its pharmacy and health services segments, its ability to harness its integrated assets and technological differentiators will be paramount. Investors should recognize CVS Health's strategic positioning as a leader in driving systemic change, with its extensive consumer reach and integrated capabilities serving as a powerful engine for long-term value creation amidst a dynamic and evolving healthcare landscape.