A Look At CVS Health’s Valuation As Medicare Advantage Rates Rise And FTC Insulin Concerns Ease

CVS Health (CVS) is back in focus after regulators approved higher than expected 2027 Medicare Advantage payment rates, and an anticipated FTC settlement eased concern around Caremark’s insulin pricing practices.

See our latest analysis for CVS Health.

The recent Medicare Advantage decision and easing regulatory concerns have triggered a sharp swing in sentiment, with a 7 day share price return of 8.69% at a US$78.79 share price. The 1 year total shareholder return of 16.55% points to momentum improving after a softer year to date patch.

If you are reassessing healthcare exposure after this move, it can be useful to see what is happening in tech enabled care too. You can start with 34 healthcare AI stocks

With CVS now at US$78.79 and trading at what looks like a steep intrinsic discount, along with a sizeable gap to the average analyst price target, is this a reset entry point or is the market already baking in future growth?

Most Popular Narrative: 24.2% Undervalued

According to the most followed narrative, CVS Health’s fair value of $104.01 sits well above the recent $78.79 share price, which puts the current rebound in a very different light.

Regardless of these risks in the near term, the present valuation for CVS indicates that the stock is undervalued by the street. At a P/E ratio of 10x, which is significantly lower than the sector average, CVS prices in at a 71% discount to its peers and points to some potential upside if it is able to execute on its turnaround strategy. In H1 2024, revenue in the HCB segment increased by 23% YoY. That undervaluation of CVS, in addition to expected EPS growth in 2025, may make it a stock to closely watch as it works through the balance of costs versus profitability for the long-term investor.

Read the complete narrative.

The fair value hinges on a detailed view of how fast earnings can rebuild, how revenue compounds in health benefits, and what steady state margins might look like. If you want to see exactly how those moving parts are stitched together over time, the full narrative lays out the numbers behind that $104.01 figure in a way a headline valuation alone cannot.

Result: Fair Value of $104.01 (UNDERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, there are still clear risks, including higher medical costs pressuring margins and any setback to the US$2b restructuring and integration efforts.

Find out about the key risks to this CVS Health narrative.

Another View: Earnings Multiple Sends a Different Signal

That 71.6% discount to our estimate of fair value paints CVS as deeply undervalued, but the earnings multiple picture is less forgiving. CVS trades on a 57.1x P/E, compared with 22.5x for the wider US Healthcare industry, a 18.5x peer average, and a 39.4x fair ratio estimate.

Put simply, one framework says the shares sit well below fair value, while the earnings multiple suggests investors are already paying up relative to peers and to that fair ratio the market could move toward over time. So which story do you trust when sizing your position?

See what the numbers say about this price — find out in our valuation breakdown.

Next Steps

Mixed signals like these can create a lot of debate. Move quickly, review the numbers yourself, and weigh both sides of the story with 3 key rewards and 4 important warning signs

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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