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CVS' Health Care Benefits Arm Shows Better Core Trends: What's Ahead?
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Key Takeaways
CVS Health raised Health Care Benefits' full-year adjusted operating income outlook above $5 billion.
CVS saw Medicare lead core performance, supported by strong medical cost management and pricing.
CVS Health said Medicaid and Commercial results met expectations and affirmed reserve adequacy.
CVS Health (CVS - Free Report) raised its full-year outlook for the Health Care Benefits segment after reporting stronger underlying performance in the first half of the year. The company now expects adjusted operating income in the range of $5.03-$5.37 billion, more than $1 billion above its earlier guidance.Full-year medical benefit ratio (MBR), which tracks medical costs as a share of premiums, is expected to be 89.8%, plus or minus 25 basis points. Management said the forecast takes a prudent view of medical cost trends in the second half.
Strength in the Government business helped lift Health Care Benefits revenues more than 3% year over year to above $37 billion in the second quarter of 2026. As of the quarter end, medical membership stood at approximately 26 million, unchanged sequentially but down about 700,000 from the prior-year quarter. The year-over-year decline largely reflected CVS Health’s exit from the Individual exchange business, while growth in commercial fee-based membership provided a partial offset.
As of the quarter end, adjusted operating income was approximately $2.4 billion, while the MBR stood at 87.4%. Both improved meaningfully year over year, reflecting continued progress in the segment’s margin recovery. The results included changes in the individual exchange risk adjustment position related to the 2025 plan year and favorable prior-year development, which together contributed approximately $500 million, or 140 bps, to the quarter’s MBR.
Core performance exceeded expectations even after excluding these items, led primarily by Medicare. The business continued to see pockets of favorability from strong medical cost management and disciplined pricing. Medicaid and Commercial results were in line with expectations, while CVS maintained its confidence in the adequacy of its reserves.
CVS Peers Update
Cardinal Health (CAH - Free Report) has entered into a binding Letter of Intent to extend its existing distribution agreement with CVS Health through June 30, 2032. As part of the renewal, the company reaffirmed its fiscal 2027 non-GAAP earnings per share (EPS) growth guidance of 13% to 15%, or $12.40 to $12.60, along with its long-term non-GAAP EPS growth outlook of 12% to 14%. In the fourth quarter of fiscal 2027, Cardinal Health posted revenues of $63.7 billion, an increase of 6%, driven by strong demand in its Pharmaceutical and Specialty Solutions segment, along with contributions from its three growth businesses.
UnitedHealthcare (UNH - Free Report) introduced its 2027 Medicare Advantage plans, aimed at providing greater affordability, simplicity and a more connected care experience for a growing and increasingly diverse beneficiary population. More than 94% of Medicare-eligible individuals nationwide will have access to a UnitedHealthcare Medicare plan, while all members will receive $0 primary care visits, $0 preventive care services and $0 Tier 1 prescription drug copays in 2027.
CVS’ Price Performance, Valuation and Estimates
Over the past six months, CVS Health shares have gained 11.3% compared with the industry’s 12.4% rise.
Image Source: Zacks Investment Research
CVS shares are trading at a forward 12-month price-to-earnings ratio of 10.36 compared with the 16.09 industry average.
Image Source: Zacks Investment Research
In the past 60 days, estimates for the company’s 2026 and 2027 earnings have increased 7.5% and 1.4%, respectively.
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CVS' Health Care Benefits Arm Shows Better Core Trends: What's Ahead?
Key Takeaways
CVS Health (CVS - Free Report) raised its full-year outlook for the Health Care Benefits segment after reporting stronger underlying performance in the first half of the year. The company now expects adjusted operating income in the range of $5.03-$5.37 billion, more than $1 billion above its earlier guidance.Full-year medical benefit ratio (MBR), which tracks medical costs as a share of premiums, is expected to be 89.8%, plus or minus 25 basis points. Management said the forecast takes a prudent view of medical cost trends in the second half.
Strength in the Government business helped lift Health Care Benefits revenues more than 3% year over year to above $37 billion in the second quarter of 2026. As of the quarter end, medical membership stood at approximately 26 million, unchanged sequentially but down about 700,000 from the prior-year quarter. The year-over-year decline largely reflected CVS Health’s exit from the Individual exchange business, while growth in commercial fee-based membership provided a partial offset.
As of the quarter end, adjusted operating income was approximately $2.4 billion, while the MBR stood at 87.4%. Both improved meaningfully year over year, reflecting continued progress in the segment’s margin recovery. The results included changes in the individual exchange risk adjustment position related to the 2025 plan year and favorable prior-year development, which together contributed approximately $500 million, or 140 bps, to the quarter’s MBR.
Core performance exceeded expectations even after excluding these items, led primarily by Medicare. The business continued to see pockets of favorability from strong medical cost management and disciplined pricing. Medicaid and Commercial results were in line with expectations, while CVS maintained its confidence in the adequacy of its reserves.
CVS Peers Update
Cardinal Health (CAH - Free Report) has entered into a binding Letter of Intent to extend its existing distribution agreement with CVS Health through June 30, 2032. As part of the renewal, the company reaffirmed its fiscal 2027 non-GAAP earnings per share (EPS) growth guidance of 13% to 15%, or $12.40 to $12.60, along with its long-term non-GAAP EPS growth outlook of 12% to 14%. In the fourth quarter of fiscal 2027, Cardinal Health posted revenues of $63.7 billion, an increase of 6%, driven by strong demand in its Pharmaceutical and Specialty Solutions segment, along with contributions from its three growth businesses.
UnitedHealthcare (UNH - Free Report) introduced its 2027 Medicare Advantage plans, aimed at providing greater affordability, simplicity and a more connected care experience for a growing and increasingly diverse beneficiary population. More than 94% of Medicare-eligible individuals nationwide will have access to a UnitedHealthcare Medicare plan, while all members will receive $0 primary care visits, $0 preventive care services and $0 Tier 1 prescription drug copays in 2027.
CVS’ Price Performance, Valuation and Estimates
Over the past six months, CVS Health shares have gained 11.3% compared with the industry’s 12.4% rise.
Image Source: Zacks Investment Research
CVS shares are trading at a forward 12-month price-to-earnings ratio of 10.36 compared with the 16.09 industry average.
Image Source: Zacks Investment Research
In the past 60 days, estimates for the company’s 2026 and 2027 earnings have increased 7.5% and 1.4%, respectively.
Image Source: Zacks Investment Research
CVS currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.