The news: CVS’s Q2 earnings topped estimates, buoyed by solid performance in its retail pharmacy segment and signs that its health insurance division is finally turning things around.

• Pharmacy and consumer wellness revenues were up nearly 13% YoY.
• Cost pressures are still mounting for Aetna, but the health insurer spent less on members’ medical care in Q2 than what analysts were expecting.
• CVS raised its profit guidance for the year.

Driving the news: CVS’ strong 2025 (the stock is up about 40% year to date) follows a rough 2024, which resulted in a CEO shakeup. Last year, rising medical costs and lower Medicare Advantage-related government payouts weighed on Aetna. While CVS’ medical benefit ratio (how much a health plan spends on patient care relative to premiums collected) is still high at 89.9%, it came in lower than the projected ~91%.

The signs for CVS are especially encouraging considering the headwinds its top competitors face.

• UnitedHealth Group withdrew its financial guidance earlier this year and acknowledged this week that 2025 earnings will fall short of already low expectations. It’s also under civil and criminal investigations by the DOJ.
• Other insurers, including Centene, Molina, and Elevance, reported disappointing earnings in July. Members using high-cost services was a common theme among each insurer’s earnings miss.
• Meanwhile, Walgreens is being taken private because of its struggling pharmacy and health services businesses.

The final word: CVS may not be thriving compared with earlier in the decade, but it’s in a good position relative to most of its rivals. That’s largely because of its diversified footprint across healthcare (pharmacy, insurance, PBM) that prevents the company from being overexposed in one struggling sector. CVS’ ongoing company turnaround could be a good sign for the similarly structured UnitedHealth, DOJ investigations notwithstanding.

Whether CVS can keep the positive momentum for the rest of its fiscal year will depend on managing costs in the Medicare market, avoiding disruption to its PBM business due to pending lawsuits, and relying less on front-of-store sales.

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