CVS Health Just Got a $13 Billion Reprieve. Here's Why the Stock Could Keep Climbing.
Key Points
Earlier this year, CVS Health shares fell after reports that Medicare payment rates would only increase by 0.09% next year.
However, with Medicare's final ruling selecting a much higher 2.5% escalation, CVS, like other healthcare stocks, have bounced back in price.
Cheaper than peers, and with forecasts of further earnings runway, there's still time to buy into what may become an extended rally for CVS Health.
- 10 stocks we like better than CVS Health ›
In a matter of months, a key issue affecting CVS Health's (NYSE: CVS) performance has seemingly vanished. On April 7, the Centers for Medicare & Medicaid Services (CMS) finalized the amount by which it will increase payments to providers operating under the Medicare program.
As you may recall, the original proposed increase was poorly received by investors, mostly because it was barely above zero and heightened concerns about a further squeeze on industry margins. But now, with the official increase far better than expected, healthcare stocks like CVS Health have surged again.
Will AI create the world's first trillionaire? Our team just released a report on the one little-known company, called an "Indispensable Monopoly" providing the critical technology Nvidia and Intel both need. Continue »
Rather than being the recipient of a short-lived rally, the latest Medicare rate increase could kick off a further surge in shares.
Image source: Getty Images.
What makes the Medicare decision a big deal for CVS
Back in January, news of CMS's proposed 0.09% Medicare rate increase sparked a sharp sell-off in top healthcare stock, including CVS. To some, this may be surprising. After all, isn't CVS just a pharmacy chain?
That hasn't been the case for quite some time. Currently, CVS is a highly diversified provider of healthcare services. Besides operating its eponymous chain of pharmacies, CVS Health is the parent company of health insurance provider Aetna. As a major provider of Medicare Advantage plans, the prospect of just a 0.09% increase signaled lower profitability ahead.
However, with CMS's finalized payment policy calling for a nearly 2.5% increase, perceptions regarding future profitability have improved considerably. With this increase, insurers will collect $13 billion more in payments than previously expected.
Although payment increases still lag rising costs of as much as 9% annually, sell-side analysts like Mizuho's Jared Holz believe plan providers like CVS Health's Aetna unit have a greater chance of increasing their margins next year, mostly through benefit cuts.
Why the rally could continue
The biggest takeaway with the Medicare payment rate decision news is what it could mean for CVS Health's earnings in the coming year. Although managed care accounts for only a portion of CVS's overall business, the aforementioned news bodes well for confidence in management's 2026 earnings guidance.
As stated in the Q4 2025 earnings report, management expects CVS's adjusted earnings per share to come in between $7 and $7.20 per share. Shares have rallied from the low $70s since the Medicare announcement, implying the stock is trading at around 11 times forward earnings. Health insurance stocks like UnitedHealth Group and Humana trade at 15 to 20 times forward earnings.
That's not to say that CVS is destined to reach valuation parity with these stocks, but even partially bridging the valuation gap could have a considerable impact on CVS's stock price. For instance, at 13 or 14 times forward earnings, based on current guidance, a move to $90 or $100 per share may be reasonable. The potential upside, both in the near and longer term, could be even greater.
The high end of analyst estimates calls for CVS to report EPS of $7.40 this year, with the larger Medicare payments perhaps driving a further double-digit earnings growth in 2027. Alongside growth potential, an investment in CVS Health offers steady gains via the stock's 3.4% forward dividend yield.
Should you buy stock in CVS Health right now?
Before you buy stock in CVS Health, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and CVS Health wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $555,526!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $1,156,403!*
Now, it’s worth noting Stock Advisor’s total average return is 968% — a market-crushing outperformance compared to 191% for the S&P 500. Don't miss the latest top 10 list, available with Stock Advisor, and join an investing community built by individual investors for individual investors.
See the 10 stocks »
*Stock Advisor returns as of April 13, 2026.
Thomas Niel has positions in UnitedHealth Group. The Motley Fool recommends CVS Health and UnitedHealth Group. The Motley Fool has a disclosure policy.
Recommended Articles
