CVS Beats Wall Street Expectations and Plans ACA Market Exit in 2026

CVS Health $CVS ( ▲ 0.79% ) delivered strong first-quarter results that exceeded Wall Street expectations while simultaneously revealing plans to exit the Affordable Care Act (ACA) exchange business by 2026.

The healthcare giant's decision will impact approximately 1 million Aetna members across 17 states who will need to seek new coverage options when the exit takes effect^4.

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Financial Performance Highlights

CVS Health reported impressive first-quarter 2025 financial results that significantly outpaced analyst projections.

The company achieved total revenues of $94.6 billion, representing a 7.0% increase compared to the same period last year^5,^8.

This performance exceeded Wall Street estimates by approximately $1.23 billion^2.

The company's profitability metrics showed substantial improvement:

Q1 2025 KEY FINANCIAL METRICS
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Revenue:         $94.6 billion (↑7.0% YoY)
GAAP EPS:        $1.41 (↑from $0.88 in Q1 2024)
Adjusted EPS:    $2.25 (↑from $1.31 in Q1 2024)
Net Income:      $1.78 billion
Operating Cash:  $4.6 billion

The strong quarterly performance was driven by growth across all business segments, with the Health Care Benefits sector showing particularly significant improvement.

CVS attributed this recovery partly to enhanced performance in its Medicare segment and improved star ratings for Medicare Advantage plans^1.

Strategic Exit from ACA Marketplace

Perhaps the most significant announcement accompanying today's earnings report was CVS's decision to completely withdraw from the individual ACA exchange market beginning in 2026^3,^4.

This exit represents a major strategic pivot for the company, which currently manages ACA plans through its Aetna division.

In preparation for this withdrawal, CVS recorded a substantial $448 million premium deficiency reserve for its individual exchange business in the first quarter^5.

This accounting measure reflects anticipated losses for the 2025 coverage year as the company winds down its ACA marketplace participation.

The timing of this exit is notable as it coincides with ongoing political discussions about potential changes to healthcare policy.

Republican lawmakers are reportedly considering healthcare benefit reductions to finance tax cuts for wealthy Americans – a move that could significantly impact the ACA marketplace in coming years^4.

Guidance Update and Market Outlook

Despite ongoing challenges in the healthcare sector, CVS has increased its financial projections for 2025:

The downward revision in GAAP EPS guidance reflects several one-time charges, including a $387 million litigation expense related to a jury verdict against its pharmacy services subsidiary, Omnicare^1,^8.

The company intends to contest this ruling, which found Omnicare liable for distributing medications without valid prescriptions to elderly and disabled residents in assisted living facilities^1.

Despite raising its adjusted earnings outlook, CVS is maintaining a cautious stance regarding the remainder of 2025, citing persistently high medical costs and potential macroeconomic challenges.

Healthcare Portfolio Reshaping

The ACA exchange exit represents just one component of CVS's broader strategy to refocus its business portfolio. This decision follows several other significant moves in recent months:

RECENT STRATEGIC PORTFOLIO CHANGES
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✓ Exited ACO REACH value-based care program
✓ Sold Medicare Shared Savings Program business to Wellvana
✓ Focused on "margin over membership" in Medicare Advantage
✓ New partnership with Novo Nordisk for weight-loss drug Wegovy
✓ Plans to exit ACA exchange market by 2026

In March 2025, CVS terminated its participation in the ACO REACH (Accountable Care Organization Realizing Equity, Access and Community Health) program and sold its Medicare Shared Savings Program business to Wellvana^9.

These moves impacted 183 employees nationwide and reflected the company's efforts to streamline operations and cut costs.

The company has also announced a shift toward a "margin over membership" strategy in its Medicare business, indicating a willingness to reduce Medicare membership by up to 10% in 2026 to improve profit margins^7.

Medicare Advantage Performance Improvement

A notable bright spot in CVS's financial results was the improvement in its Medicare Advantage business.

The medical benefit ratio for the Health Care Benefits segment – which measures total medical expenses against collected premiums – dropped to 87.3% from 90.4% a year earlier^1.

A declining ratio typically indicates improved profitability as the company collects more in premiums than it pays out in benefits.

This improvement was partially attributed to enhanced star ratings for Medicare Advantage plans.

For 2025, 88% of Aetna Medicare Advantage members are in plans rated 4 stars or higher by the Centers for Medicare & Medicaid Services (CMS)^6.

This represents a significant achievement, particularly for CVS's largest Medicare Advantage contracts:

These improved ratings are particularly significant as CVS had previously projected potential losses of several billion dollars in 2024 due to lower star ratings^7.

The recovery in these metrics should provide a financial boost in the coming year.

Pharmacy Segment and Wegovy Partnership

While CVS reported growth across all segments, sales within the retail pharmacy division fell short of Wall Street's expectations.

The company attributed this underperformance to weaker consumer spending and reduced reimbursements for prescription medications^1.

However, CVS did announce a potentially significant new initiative in its pharmacy business.

The company has reached an agreement with Danish pharmaceutical firm Novo Nordisk to prioritize its weight-loss drug Wegovy in CVS Caremark's offerings starting July 1^3. Additionally, CVS plans to offer Wegovy at reduced cash prices through its retail pharmacies.

This partnership comes at a time of surging demand for GLP-1 weight loss medications and could provide a boost to CVS's pharmacy operations.

The company reported a 6.7% increase in same-store prescription volume (on a 30-day equivalent basis) during the first quarter^8.

Market Response and Analyst Outlook

Wall Street analysts maintain a generally positive outlook on CVS despite recent challenges. The average analyst price target for CVS stands at $74.84, suggesting a potential upside of 12.19% from the current trading price of $66.71^2.

ANALYST CONSENSUS ON CVS HEALTH
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Average Rating: 2.2 ("Outperform")
Analysts Covering: 29 brokerage firms
Avg. Price Target: $74.84 (12.19% upside)
Price Range: $60.00 - $90.00

According to GuruFocus's GF Value estimate, CVS shares could have even greater upside potential. The site projects a fair value of $87.79 in one year, representing a possible 31.6% increase from current levels^2.

Looking Ahead: Challenges and Opportunities

As CVS reshapes its portfolio and exits the ACA exchange business, the company faces both challenges and opportunities.

The healthcare giant must navigate ongoing litigation issues, manage elevated medical costs, and execute its strategic transitions while maintaining operational performance.

The company's focus on higher-margin business segments and improved Medicare Advantage performance suggests a shift toward profitability over growth. This approach, combined with partnerships like the Novo Nordisk agreement, could position CVS for more sustainable long-term performance if executed effectively.

For the approximately 1 million Aetna members who will need to find new coverage when CVS exits the ACA marketplace in 2026, the transition creates uncertainty.

However, CVS has committed to maintaining service through 2025 and supporting members during the transition period^4.

We will be watching closely to see how CVS's strategic pivots impact both its financial performance and the broader healthcare landscape in the coming years.