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CVS trades at 8.88X forward P/E vs. UNH's 11.98X, reflecting stronger relative valuation ahead of Q2 earnings.
CVS Health (CVS - Free Report) and UnitedHealth (UNH - Free Report) offer integrated healthcare services but their first-quarter result were quite contrasting. CVS delivered a robust performance, driven by strong growth across all segments and improved Medicare Advantage metrics. The company even raised its full-year EPS guidance. In contrast, UnitedHealth fell short on both earnings and revenues due to elevated medical costs and a challenging Medicare funding environment, prompting a significant cut to its 2025 EPS outlook. As both companies prepare to release their second-quarter 2025 results next week, it's time for investors to evaluate two of the most vertically integrated players in U.S. healthcare. Let's delve deeper.
Meanwhile, during the second-quarter months ended June 30, shares of CVS gained 2.5% while UNH plummeted 40% during the period.
Image Source: Zacks Investment Research
Case for CVS Health Ahead of its Q2 Release
Aetna’s Commercial Insurance Remains a Bright Spot: The Health Care Benefits segment reported year-over-year revenue growth of 8% in the first quarter. Medical membership held steady at around 27.1 million in the first quarter of 2025, as declines in individual exchange and Medicare lines were offset by growth in fee-based commercial plans. While commercial membership saw modest growth, its stability contributed to a sharp rise in adjusted operating income to $1.99 billion from $732 million a year ago. This segment remains a margin-friendly counterbalance to volatility in government-backed insurance.
Strategic Review of Oak Street Health Shows Capital Discipline: CVS Health confirmed that it is conducting a strategic review of Oak Street Health, which it acquired for $10.6 billion in 2023. CVS Health is reviewing Oak Street Health’s role after the first quarter revealed rising costs tied to its rapid expansion. While healthcare delivery revenues rose 27% year over year, management aims to focus capital on higher-return investments and stronger-performing verticals.
Medicare Advantage Costs Remain a Major Overhang: CVS reported a first-quarter medical benefit ratio (MBR) of 87.3%, down from 90.4% last year, aided by reserve releases and better MA star ratings. However, this includes a 130 basis points (bps) hit from a $431 million premium deficiency reserve tied to its ACA exit. Underlying MA costs, especially outpatient and supplemental benefits, remain elevated. Management warned that these pressures may take multiple quarters to normalize, with potential margin compression continuing into the second quarter.
Case for UnitedHealth Ahead of Q2 Release
Strong Optum Momentum in Pharmacy and Value-Based Care: UNH’s Optum is driving growth on two fronts. Optum Rx revenues rose 14% year over year in the first quarter, fueled by rising script volumes, biosimilar adoption and specialty pharmacy strength. At the same time, Optum Health reaffirmed its goal to add 650,000 new value-based care patients in 2025, highlighting continued investment in this model.
Sharp Rise in Medicare Advantage Costs and Guidance Cut: The biggest concern for UnitedHealth from the first quarter was the spike in Medicare Advantage utilization. Medical costs for seniors, especially in outpatient and professional services, were well above expectations, pushing the medical care ratio (MCR) to 84.8%, up from 84.3% in 2024. In response, UnitedHealth lowered its 2025 adjusted earnings guidance to $26.00-$26.50 per share, down from the prior estimate of approximately $29.50-$30.00. CEO Andrew Witty called the results “unacceptable” and admitted that the company is still working to adjust for the cost surge in its 2025 pricing and plan design. The full MCR is now expected to be 87.5% plus or minus 50 bps, reflecting higher utilization across senior populations and the patient mix and revenue profile of Optum Health. Management noted that MCR will likely trend below the midpoint in the first half of 2025 and above it in the second half, reflecting seasonal dynamics and ongoing adjustments.
Comparing Q2 EPS Projections: CVS Health & UnitedHealth
The Zacks Consensus Estimate for CVS' second-quarter 2025 earnings per share suggests a 19.7% decline from the year-ago period.
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for UNH’s second-quarter 2025 EPS implies a decline of 28.8% year over year.
Image Source: Zacks Investment Research
CVS is Attractively Valued Than UNH
CVS is trading at a forward 12-month price-to-earnings, which is a commonly used multiple for valuing healthcare stocks, of 8.88X, below its 5-year median of 9.55X. UNH is presently trading at a forward 12-month price-to-earnings of 11.98X, which is also below its 5-year median of 19.20X.
This suggests that while both stocks remain attractively valued when compared with their own historical average, UNH appears elevated relative to CVS.
Image Source: Zacks Investment Research
CVS a Better Bet Ahead of Q2 Earnings
Given the expectations ahead of the second-quarter results, CVS Health emerges as the stronger bet right now. Despite persistent Medicare Advantage pressures, CVS, a Zacks Rank #2 (Buy) stock, is showing resilience through stable commercial insurance performance, disciplined capital reallocation via the Oak Street review, and a significantly lower valuation relative to UnitedHealth. In contrast, UnitedHealth, with a Zacks Rank #4 (Sell), continues to grapple with outsized MA utilization, a sharp guidance cut and rising cost pressure that may weigh on earnings in the rest of 2025.
Image: Bigstock
CVS or UnitedHealth: Which Stock Is a Better Buy Ahead of Q2 Earnings?
Key Takeaways
CVS Health (CVS - Free Report) and UnitedHealth (UNH - Free Report) offer integrated healthcare services but their first-quarter result were quite contrasting. CVS delivered a robust performance, driven by strong growth across all segments and improved Medicare Advantage metrics. The company even raised its full-year EPS guidance. In contrast, UnitedHealth fell short on both earnings and revenues due to elevated medical costs and a challenging Medicare funding environment, prompting a significant cut to its 2025 EPS outlook. As both companies prepare to release their second-quarter 2025 results next week, it's time for investors to evaluate two of the most vertically integrated players in U.S. healthcare. Let's delve deeper.
Meanwhile, during the second-quarter months ended June 30, shares of CVS gained 2.5% while UNH plummeted 40% during the period.
Image Source: Zacks Investment Research
Case for CVS Health Ahead of its Q2 Release
Aetna’s Commercial Insurance Remains a Bright Spot: The Health Care Benefits segment reported year-over-year revenue growth of 8% in the first quarter. Medical membership held steady at around 27.1 million in the first quarter of 2025, as declines in individual exchange and Medicare lines were offset by growth in fee-based commercial plans. While commercial membership saw modest growth, its stability contributed to a sharp rise in adjusted operating income to $1.99 billion from $732 million a year ago. This segment remains a margin-friendly counterbalance to volatility in government-backed insurance.
Strategic Review of Oak Street Health Shows Capital Discipline: CVS Health confirmed that it is conducting a strategic review of Oak Street Health, which it acquired for $10.6 billion in 2023. CVS Health is reviewing Oak Street Health’s role after the first quarter revealed rising costs tied to its rapid expansion. While healthcare delivery revenues rose 27% year over year, management aims to focus capital on higher-return investments and stronger-performing verticals.
Medicare Advantage Costs Remain a Major Overhang: CVS reported a first-quarter medical benefit ratio (MBR) of 87.3%, down from 90.4% last year, aided by reserve releases and better MA star ratings. However, this includes a 130 basis points (bps) hit from a $431 million premium deficiency reserve tied to its ACA exit. Underlying MA costs, especially outpatient and supplemental benefits, remain elevated. Management warned that these pressures may take multiple quarters to normalize, with potential margin compression continuing into the second quarter.
Case for UnitedHealth Ahead of Q2 Release
Strong Optum Momentum in Pharmacy and Value-Based Care: UNH’s Optum is driving growth on two fronts. Optum Rx revenues rose 14% year over year in the first quarter, fueled by rising script volumes, biosimilar adoption and specialty pharmacy strength. At the same time, Optum Health reaffirmed its goal to add 650,000 new value-based care patients in 2025, highlighting continued investment in this model.
Sharp Rise in Medicare Advantage Costs and Guidance Cut: The biggest concern for UnitedHealth from the first quarter was the spike in Medicare Advantage utilization. Medical costs for seniors, especially in outpatient and professional services, were well above expectations, pushing the medical care ratio (MCR) to 84.8%, up from 84.3% in 2024. In response, UnitedHealth lowered its 2025 adjusted earnings guidance to $26.00-$26.50 per share, down from the prior estimate of approximately $29.50-$30.00. CEO Andrew Witty called the results “unacceptable” and admitted that the company is still working to adjust for the cost surge in its 2025 pricing and plan design. The full MCR is now expected to be 87.5% plus or minus 50 bps, reflecting higher utilization across senior populations and the patient mix and revenue profile of Optum Health. Management noted that MCR will likely trend below the midpoint in the first half of 2025 and above it in the second half, reflecting seasonal dynamics and ongoing adjustments.
Comparing Q2 EPS Projections: CVS Health & UnitedHealth
The Zacks Consensus Estimate for CVS' second-quarter 2025 earnings per share suggests a 19.7% decline from the year-ago period.
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for UNH’s second-quarter 2025 EPS implies a decline of 28.8% year over year.
Image Source: Zacks Investment Research
CVS is Attractively Valued Than UNH
CVS is trading at a forward 12-month price-to-earnings, which is a commonly used multiple for valuing healthcare stocks, of 8.88X, below its 5-year median of 9.55X. UNH is presently trading at a forward 12-month price-to-earnings of 11.98X, which is also below its 5-year median of 19.20X.
This suggests that while both stocks remain attractively valued when compared with their own historical average, UNH appears elevated relative to CVS.
Image Source: Zacks Investment Research
CVS a Better Bet Ahead of Q2 Earnings
Given the expectations ahead of the second-quarter results, CVS Health emerges as the stronger bet right now. Despite persistent Medicare Advantage pressures, CVS, a Zacks Rank #2 (Buy) stock, is showing resilience through stable commercial insurance performance, disciplined capital reallocation via the Oak Street review, and a significantly lower valuation relative to UnitedHealth. In contrast, UnitedHealth, with a Zacks Rank #4 (Sell), continues to grapple with outsized MA utilization, a sharp guidance cut and rising cost pressure that may weigh on earnings in the rest of 2025.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.