CVS Lowers Annual Profit Forecast, Warns of Challenges in 2025; Shares Drop 18%

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CVS Health Corp has revised its annual profit forecast downward and faces challenges with its health insurance plans for older adults, leading to a significant drop in its shares. The company now expects adjusted earnings for 2024 to be at least $7.00 per share, down from its previous projection of at least $8.30. CVS attributes this adjustment to the continued surge in medical procedures, particularly among older adults, leading to higher costs for its Aetna health insurance unit.

The announcement caused CVS shares to plummet by over 18%, reaching a four-year low and resulting in a loss of over $15 billion in market value. Rising medical costs, exacerbated by lower performance-based bonus payments due to reduced Star Ratings on Aetna’s Medicare Advantage plans for 2023, have contributed to the company’s challenges.

Additionally, CVS faces negative margins of around 3%-4% from its Aetna Medicare Advantage business this year. Aggressive pricing of its 2024 Medicare Advantage plans aimed at gaining market share has further impacted its financial performance.

However, CVS has seen strong demand for biosimilar versions of AbbVie’s Humira after removing the branded drug from its list of reimbursed medicines. Despite this, the company is preparing to address challenges from government reimbursement rates for 2025, as well as provisions in the Inflation Reduction Act, which could impact pricing strategies for health plans.

While CVS aims to improve margins next year, challenges in pricing and reimbursement rates pose continued obstacles. The company’s healthcare benefits segment, including Aetna, recorded a higher medical cost ratio for the first quarter compared to the previous year, further highlighting the financial pressures it faces.

Analysts suggest that CVS’s focus on margin improvement could alleviate competition for other health insurers in 2025, benefiting companies like UnitedHealth and reducing pressure on competitors such as Humana. However, CVS’s first-quarter profit of $1.31 per share fell short of analysts’ expectations, reflecting ongoing challenges in the healthcare industry.