CVS Health Stock Rallies 38% in May: Is it a Buy Amid PBM Pressure?

CVS Health CVS shares have rallied nearly 38% so far this month, driven by the company’s stronger-than-expected first-quarter 2025 results. Despite concerns over the company’s decision to implement widespread store closures due to new Pharmacy Benefit Management (PBM) reform legislation, market sentiment remains positive. Investors are encouraged by the robust performance of CVS Health Care Benefits segment, which benefited from favorable prior-year development and improved Medicare performance. The margin expansion in the first quarter adds to the optimism. Additionally, the company’s raised full-year EPS guidance underscores solid performance across all business segments.This PBM and pharmacy retail powerhouse has outperformed the S&P 500’s 0.8% decline and its major competitors — Walgreens Boots WBA and Herbalife Ltd.’s HLF growth of 21.9% and 1.8%, respectively, during the said period.Month-to-Date Price ComparisonImage Source: Zacks Investment Research Key Q1 TakeawaysCVS Health reported first-quarter 2025 adjusted earnings per share (EPS) of $2.25 and adjusted operating income of $4.6 billion, beating market expectations. The company raised its full-year adjusted EPS guidance to a range of $6 to $6.20, up from its previous projection of $5.75 to $6. This upward revision reflects confidence in the continued operational strength and prudent execution across its core businesses—Health Care Benefits, Pharmacy Services, and Retail/LTC.A major highlight of the quarter was the appointment of Brian Newman as chief financial officer and Amy Compton-Phillips as chief medical officer. According to CVS, with the management team now complete, CVS is better positioned to advance its long-term vision of becoming America's most trusted healthcare company.Meanwhile, the CVS Health app is becoming a key digital tool, offering customers better visibility into their care and real-time AI recommendations. These features boost engagement and support improved health outcomes through personalized insights.Streamlining Access and Lowering CostsCVS Health is making care easier and faster by streamlining prior authorizations, with 95% of Aetna’s prior authorization requests now processed within 24 hours. Its bundled cancer care model is cutting delays and easing provider burden, with plans to expand to cardiology and musculoskeletal care.Meanwhile, its pharmacy segment continues to lead the industry, processing over 1.7 billion prescriptions annually while delivering high medication adherence, especially among Medicare Advantage members. Strategic investments in technology and cost efficiency are fueling this performance.On the affordability front, CVS is expanding access to critical therapies. It partnered with Novo Nordisk to offer Wegovy at lower costs through its weight management program and leads the U.S. market with its low-cost Humira biosimilar, Cordavis, generating over $1 billion in savings for clients.Portfolio Optimization and Strategic Focus AreasCVS Health announced its exit from the ACA individual exchange markets by 2026 due to persistent losses, despite multi-year improvement efforts. Instead, the company will double down on segments where it has competitive strength, namely Medicare, commercial and Medicaid plans.PBM Reform Sparks Controversy as CVS Closes Pharmacies in ArkansasCVS Health is set to close 23 pharmacies in Arkansas following the passage of HB1150, a first-of-its-kind law banning PBMs from owning or operating pharmacies in the state. Signed into law by Governor Sarah Huckabee Sanders in April 2025, the legislation comes amid growing national scrutiny of PBMs and their influence on drug pricing.PBMs, including those run by CVS Health, Cigna CI and UnitedHealth UNH, manage nearly 80% of U.S. prescriptions. A January 2025 FTC report found that these firms significantly marked up prices on essential generics like heart disease, cancer and HIV treatments.Governor Sanders said the law aims to stop PBMs from exploiting weak regulations. CVS, however, warned the move will limit pharmacy access, increase drug spending, and lead to job losses, calling HB1150 “a bad policy” and launching a campaign urging its veto.CVS Health Offers Relative Value Amid Mixed Peer ComparisonsIn terms of valuation, CVS Health’s forward 12-month price-to-earnings (P/E) is 9.46X, a discount to the S&P 500’s 21.37X.Image Source: Zacks Investment ResearchHowever, the stock is trading at a premium to the company’s competitors — Walgreens Boots Alliance’s average of 7.52X and Herbalife’s 3.32X.CVS stock’s premium over peers may be justified by its scale, efficiency and strategic focus on digital health, AI and value-based care. Meanwhile, its discount to the S&P 500 offers an attractive entry point for long-term investors seeking stable, growth-oriented healthcare exposure.Target Price Reflects Strong UpsideBased on short-term price targets offered by 22 analysts, CVS Health is currently trading nearly 22% below its average Zacks price target. Image Source: Zacks Investment ResearchCVS Health - A Buy NowDespite regulatory challenges and recent pharmacy closures tied to PBM reform, CVS Health, a Zacks Rank #2 (Buy), remains a strong long-term investment. Its diversified business across retail, insurance and pharmacy benefits helps cushion short-term risks. CVS is advancing in digital health, improving prior authorizations and boosting medication adherence, especially for Medicare Advantage members. With a low P/E ratio compared to the S&P 500 and a justified premium over peers, CVS offers a stable, scalable, and promising play in a rapidly evolving healthcare sector. 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Click to get this free report UnitedHealth Group Incorporated (UNH): Free Stock Analysis Report Cigna Group (CI): Free Stock Analysis Report CVS Health Corporation (CVS): Free Stock Analysis Report Herbalife Ltd (HLF): Free Stock Analysis Report Walgreens Boots Alliance, Inc. (WBA): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks