CVS Health's Comeback Is Just Getting Started -- and Its Valuation Still Looks Shockingly Cheap

CVS Health (NYSE: CVS) encountered significant problems after the pandemic. Revenue growth slowed while expenses rose -- squeezing profits and margins -- due to several challenges. However, the pharmacy chain giant has been bouncing back. The stock has climbed by 48% over the past 12 months. The good news is that CVS Health's comeback may be just getting started, and there is plenty of upside ahead for investors willing to be patient.

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Anatomy of a comeback

CVS Health faced several problems after the pandemic. For instance, sales of pandemic-related products, such as diagnostic tests, slowed significantly. More importantly, though, CVS Health dealt with rising utilization and costs in its health insurance division, particularly in its Medicare Advantage (MA) business. The company revised its guidance downward several times due to this issue, signaling an uncertain environment. However, over the past year, CVS Health has improved its financial results.

They are still getting better, as the company proved during the first quarter. The healthcare giant's revenue increased by about 6% year over year to $100.4 billion. Its adjusted earnings per share rose to $2.57, up about 14% from the year-ago period. Further, CVS Health increased its EPS guidance for the fiscal year 2026. Considering the company's results came in ahead of analyst estimates, it was a raise-and-beat quarter for CVS Health. But why is the company performing better?

There are several factors. Let's consider two. First, during the first quarter, CVS Health's medical benefit ratio (MBR) dropped to 84.6%, down 2.7% compared to the first quarter of 2025. The MBR measures the percentage of premium revenue insurers spend on members' healthcare costs. A lower MBR means higher profits, so this is good news for CVS Health. Second, CVS Health has improved the efficiency of its insurance business by digitizing the prior authorization process. These efforts, and others, have helped keep costs in check and increase the company's profits.

Why the rebound isn't over

We have yet to see the full effect of CVS Health's initiatives, and the company will likely double down on various efforts to improve its business. The pharmacy leader had plans to scale back its MA business this year. That could lead to lower overall revenue, but CVS Health wants to focus on profitable growth. That's good news for investors. Beyond the company's short-term outlook, though, long-term investors will find a lot to like with CVS Health.

The company's large, diversified healthcare business enables it to support patients throughout much of their care journey, whether through its primary care operations, insurance business, pharmacy services, and more. This can be more convenient for patients. Instead of relying on separate entities for their medical needs, CVS Health provides many of them under a single umbrella.

Just as important, CVS Health's vertically integrated model enables it to deliver and finance healthcare services, thereby reducing total expenses by directing patients to lower-cost options. Further, CVS Health has also built a solid brand as a trusted name in the healthcare sector, an advantage that is hard to replicate. All of these factors position CVS Health well to benefit from long-term secular trends, such as the world's aging population, that will drive increased healthcare utilization and higher spending in the sector.

CVS Health is also a solid dividend stock. The company has increased its payouts by 56.5% over the past decade, and it offers a forward dividend yield of 2.6%. Finally, CVS Health remains attractively valued, even after its run over the past 12 months. The company is trading at 13.8x forward earnings, versus the healthcare sector's average of 17.4x. CVS Health remains a top long-term pick for investors.

Prosper Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool recommends CVS Health. The Motley Fool has a disclosure policy.