CVS Health, a company that had a rough 2024, is showing signs of a comeback. Investors are taking notice, especially after the company's impressive fourth-quarter earnings report. Shares of CVS have surged by over 45% this year, outperforming rivals like Walgreens, which has only seen a 3% increase. Even other insurers like UnitedHealth Group and Cigna are lagging behind with increases of about 4% and nearly 8%, respectively.

The turnaround for CVS is not just about the numbers. It's about the company's ability to navigate challenges. In 2024, CVS faced a 40% stock plunge due to missed earnings estimates and higher-than-expected medical costs. The company's insurance unit, Aetna, has been a significant part of the problem. But CVS is taking steps to turn things around.

CVS has been closing stores and cutting costs. The new CEO, David Joyner, has been focusing on Aetna. Analysts are optimistic about CVS's ability to handle future challenges. Michael Cherny of Leerink Partners upgraded the stock, citing a potential return to operational performance. Cantor Fitzgerald analysts also upgraded CVS, expressing confidence in a successful turnaround.

CVS's insurance business has been struggling. The company has exited unprofitable health plans and increased premiums. Cantor Fitzgerald analysts are hopeful that CVS will improve margins in its Medicare Advantage business by 2027. CVS aims to get the Medicare Advantage business back to a 3% to 5% margin, up from a negative 4. 5% to 5% range at the end of 2024.

The company plans to shrink its Medicare Advantage membership by a "high single-digit percentage" from the end of 2024. Aetna had 4. 4 million Medicare Advantage members as of December, up from 3. 5 million the year before. CVS executives expect to decrease insurance members by more than 1 million this year, including 800, 000 in the individual market.

CVS is pushing for higher payment rates from the government for Medicare Advantage. The proposed rates for 2026 don't account for higher medical costs over the last year. The Biden administration proposed a 2. 2% increase in Medicare Advantage reimbursement rates for 2026, up from a 0. 2% drop this year. Cantor analysts expect the Medicare Advantage reimbursement rate could rise, projecting a finalized increase of 2% to 2. 8%.

The outlook for 2025 is uncertain. Higher medical costs are expected to continue, but CVS's full-year guidance assumes trends from 2024 will carry over into this year. The company last year said it would make significant changes to its Medicare Advantage plans for 2025, such as increasing copays and premiums and cutting back certain health benefits.

CVS: The Comeback Kid of 2025?

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