CVS Health Corporation (NYSE: CVS) reported record full-year 2025 consolidated revenues of $402.1 billion, a 7.8% increase over the prior year. Despite a 45.3% decline in annual GAAP operating income due to significant non-cash charges, the company reaffirmed its 2026 adjusted diluted earnings per share (EPS) guidance of $7.00 to $7.20. Shares were influenced by a fourth-quarter revenue beat of $105.7 billion, though adjusted quarterly EPS of $1.09 fell from $1.19 in the previous year.
Financial Performance
Quarterly Results:
- Revenue: $105.7 billion (up 8.2% YoY).
- GAAP EPS: $2.30 (up from $1.30).
- Adjusted EPS: $1.09 (down from $1.19).
- Adjusted Operating Income: $2.60 billion (down 4.8% YoY).
Full-Year Metrics:
- Total Revenue: $402.1 billion.
- Net Income: $1.73 billion (down from $4.59 billion in 2024).
- Adjusted Operating Income: $14.44 billion (up 20.6%).
- Operating Expenses: $45.0 billion (up from $41.7 billion).
Balance Sheet:
- As of December 31, 2025, CVS Health held $8.45 billion in cash and cash equivalents.
- Total assets were $253.5 billion, while long-term debt remained stable at $60.5 billion.
- Shareholders’ equity was $75.4 billion.
Seasonality Shift
The primary driver of the 2025 results was the impact of the Inflation Reduction Act (IRA), which altered the seasonality of the Medicare Part D program. This shift contributed to an adjusted operating loss of $676 million in the Health Care Benefits segment for the fourth quarter. Additionally, the company recorded a $5.7 billion goodwill impairment charge related to its Health Care Delivery reporting unit and approximately $1.2 billion in legacy litigation charges.
Product Highlights
CVS Pharmacy completed its transition to a cost-based reimbursement model across its Commercial, Medicare, and Medicaid businesses. In the Health Care Benefits segment, Aetna reported that over 95% of eligible prior authorizations are now processed within 24 hours. The company is also currently focused on enhancing Oak Street Health operations and expanding its pharmacy benefit management (PBM) “model of the future” to increase transparency.
Investment Thesis (Bull vs. Bear)
Bull Case:
- Revenue Scale: Achieved record annual revenue exceeding $400 billion with growth in all three core segments.
- Market Leadership: Maintained a retail pharmacy script share of over 29% and processed 1.9 billion pharmacy claims.
- Cash Generation: Generated $10.6 billion in cash flow from operations in 2025, returning over $3.0 billion to shareholders via dividends.
- Margin Recovery: The Health Care Benefits segment saw annual adjusted operating income rise by $2.6 billion, signaling the start of a multi-year margin recovery plan.
Bear Case:
- Membership Attrition: Total medical membership fell by 504,000 year-over-year to 26.6 million, driven by declines in individual exchange and government lines.
- Asset Impairments: A $5.7 billion charge indicates valuation pressures within the Health Care Delivery unit.
- Cost Pressures: Medical benefit ratios (MBR) remain high at 91.2% for the year, with management noting that medical cost trends stay elevated.
- Regulatory Risk: IRA-driven Medicare Part D changes continue to introduce earnings volatility and seasonality shifts.
Guidance Update
Management reaffirmed its 2026 adjusted operating income target of $15.07 billion to $15.41 billion. Cash flow from operations for 2026 is projected at “at least $9.0 billion,” a revision from the previous $10.0 billion estimate due to the early receipt of payments at the end of 2025.
Strategy Focus The company’s strategy emphasizes “building trust” through achievable financial targets and continued integration of Health Services assets like Signify Health and Oak Street Health.
Sector Context
CVS Health operates within a high-cost medical environment. Management noted that medical cost trends were “broadly in line with expectations” but remained elevated across all products. The PBM sector is currently transitioning toward increased consumer transparency and cost-based pharmacy reimbursement models to address pharmacy network pressures.
What Investors Are Watching
- Medical Costs: Management notes cost trends are broadly in line with expectations but remain elevated.
- Operational Efficiency: Execution of Oak Street Health operations and PBM model evolution.
- Capital Allocation: The company returned over $3.0 billion in dividends to shareholders in 2025.
Risks & Concerns
- Reimbursement Pressure: Continued pharmacy reimbursement pressure impacts the Pharmacy & Consumer Wellness segment.
- Medicare Pricing: The IRA continues to affect the financial timing and underwriting of Medicare products.
- Litigation Charges: Ongoing opioid and legacy litigation remains a material expense factor.