Editor’s Note: Now that I’m eligible for Medicare, I’ve been spending a lot of time in CVS stores lately. That’s because CVS is the vendor for my Aetna Medicare supplement plan that covered my knee replacement surgery.

I must admit that I don’t care for the shopping experience at CVS. The stores are a bit grungy, and merchandise is often mislabeled and in the wrong places (perhaps for that reason).

I guess that doesn’t matter much. There is always a long wait at the pharmacy counter no matter what day or time I go. When you need your meds, you’re willing to put up with just about anything to get them!

Long Way Down

The past few years have been rough for CVS Health (NYSE: CVS) shareholders. After peaking near $110 a share three years ago during the COVID rally, it’s been a downhill ride ever since.

Two months ago, CVS fell below $45 before finding a bottom. It remained there through the end of December, resulting in a 41 percent decline during 2024.

It has rallied since then, jumping above $60 this week after the company released strong fiscal 2024 Q4 and full-year results on February 12 (as shown in the chart below).

Strong Guidance for 2025

Those numbers included a 4.2 percent increase in total revenues during the fourth quarter compared to the previous year. Coincidentally, the full-year growth rate for total revenues was also 4.2 percent.

That’s a solid result, but it is the company’s expectations for 2025 that got Wall Street’s attention. This year, CVS is guiding for adjusted EPS (earnings per share) of $5.75 to $6.00 compared to $5.42 in 2024.

The midpoint of that range represents an increase of more than 8 percent over last year’s performance. If it can hit that number, then CVS is currently valued at a little around 11 times forward adjusted earnings compared to a multiple of 23 for the S&P 500 Index.

Less Margin for Error

The company’s CEO, David Joyner, certainly believes it will happen: “Through the continued dedication of our colleagues, we will be positioned for strong performance in 2025 as we deliver simply better care for consumers while improving outcomes and reducing costs.”

Reducing costs will be the key to CVS increasing its per share profitability in 2025. Especially since the company is guiding for a drop in cash flow from operations from $9.1 billion in 2024 to $6.5 billion this year.

Less cash flow from operating means less margin for error. However, it can also mean wider operating margins if CVS is mostly eliminating unprofitable businesses that do not contribute to profitability.

Industry Wide Challenges

To do that, CVS must make good on its vow to “address the industry-wide challenges that have impacted our Health Care Benefits segment.” Exactly how it intends to do that was not spelled out but it’s safe to assume that a lot of cost cutting will be happening in that department.

The management team at CVS has another problem to consider; namely, the potential impact on its Medicare supplemental insurance business if the Trump administration makes good on its vow to slash Medicare costs.

Perhaps in anticipation of that, Aetna reduced the quarterly cash benefit to its supplemental plan customers from $105 a quarter in 2024 to just $15 this year. Multiple that difference by a few million customers and it starts to add to some real money!