CVS Health Eyes Margin Recovery, Cash Flow as 2027 Headwinds Loom

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Thu, September 10, 2026 at 12:02 PM GMT+3 6 min read

CVS -1.34%

Key Points

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CVS Health reported improving momentum across Aetna, pharmacy operations, Oak Street Health and its balance sheet, with pharmacy growth returning to the mid-single digits and leverage reduced to the mid-3-times range.
Aetna is focused on restoring margins amid elevated medical costs, while maintaining a cautious approach to 2027 Medicare Advantage bids and facing uncertainty around Medicaid policies.
Several 2027 risks remain, including declining 340B revenue, a less robust Caremark selling season and potentially changing health-plan enrollment. CVS plans to support its dividend, potentially resume share buybacks in 2026, and consider disciplined bolt-on acquisitions.

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CVS Health (NYSE:CVS) executives said the company is seeing improved momentum across its insurance, pharmacy, care delivery and balance-sheet priorities, while maintaining a cautious outlook on healthcare cost trends and several 2027 headwinds.

Speaking at an investor conference, Chief Financial Officer Brian Newman said Aetna has been on a "steady march" toward target margins since 2024, pharmacy operations have returned to mid-single-digit growth after several years of declines, and Caremark is expected to meet its guidance for the year. He also cited progress at Oak Street and reduced leverage as contributors to the company's improving execution.

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"We are getting to a place where we are happy and start to spin off cash," Newman said, adding that CVS Health is focused on building credibility by delivering on its stated plans.

Aetna Focuses on Margin Recovery and Medical Costs

Steve Nelson, president of Aetna, attributed the health insurer's improved performance to a stronger operating foundation, including forecasting, pricing discipline and Medicare Advantage bid management. He said 12 of Aetna's 13 senior executives are either new to their roles or new to Aetna over the last two years.

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Nelson said the company is also pursuing differentiation through prior-authorization reform, provider partnerships, consumer navigation and digital tools. While he said there are "pockets of favorability," particularly in Medicare Advantage, absolute healthcare costs remain elevated.

Aetna has approximately 2,000 initiatives aimed at managing medical cost trends, Nelson said. These include products intended to steer members toward high-quality providers, expanded care navigation and closer coordination with providers to reduce administrative friction.

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"It's a high trend environment, so we remain cautious, prudent" in forecasting, Nelson said, noting that Aetna still needs to complete its work to restore margins to target levels.

For Medicare Advantage, Nelson said CVS has maintained a disciplined approach to its 2027 bids, prioritizing margin recovery while seeking selective opportunities to offer greater benefit stability in certain markets. He said improved geographic and product mix, along with leading Star Ratings performance, have positioned the business more favorably heading into 2027.

On Medicaid, Nelson said the business is performing in line with expectations and that the company has had constructive discussions with state partners on rates. He said there remains considerable uncertainty surrounding work requirements and eligibility policies, as states continue to develop implementation strategies.

340B and Caremark Selling Season Remain Watch Items

Newman and Chief Strategy Officer Larry McGrath addressed the evolving 340B drug-pricing program, which CVS identified as an important consideration for its health services segment. McGrath said CVS expects the program to be smaller in 2026 than it was in 2025 and to decline again in 2027, based on what the company currently knows.

The executives said they expect the program to stabilize after 2027 from CVS's perspective. CVS had previously cited adjusted earnings per share of $8.44 as a floor for 2027, which McGrath said did not assume extraordinary actions or capital deployment beyond offsetting dilution.

The company also expects a less robust Caremark selling season than the prior year. Newman said Caremark had $6 billion in new wins and retention above 99% last year, compared with industry retention rates in the mid-90% range. CVS has become more selective about the risk profile of legacy contracts it carries forward, he said.

McGrath added that health-plan customers may selectively exit exchanges, Medicare Advantage plans or Part D markets, though the enrollment effects of those decisions have yet to play out.

Pharmacy, Oak Street and AI Investments

Newman said the pharmacy and consumer wellness business is benefiting from investments in technology and employees, the CostVantage reimbursement model, and tailwinds from the Rite Aid acquisition. CVS expects mid-single-digit growth in the business this year after reporting similar growth last year.

McGrath said CostVantage has helped CVS earn what it considers a fair margin on every prescription it dispenses, including GLP-1 medications. He said the company also shares improvements in cost of goods sold with payer partners.

Regarding Oak Street, Newman said the care-delivery business arrested its profit decline several quarters ago and has since delivered results in line with expectations. He said CVS expects Oak Street to turn profitable over the next couple of years.

Executives also highlighted artificial-intelligence investments across the enterprise. Nelson said Aetna is using AI to schedule member appointments, support care advocates, speed provider credentialing and improve prior-authorization processing. He said preparation for certain member outreach conversations has declined from 90 minutes to two minutes, while provider credentialing can now be completed in a day versus 30 to 120 days previously.

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Newman said CVS has reduced debt-to-EBITDA leverage from about 5 times in 2024 to the mid-3-times range, supporting the company's desired BBB credit rating. The company has paid down $4 billion in debt this year, he said.

CVS plans to support its dividend and is preparing to resume share repurchases next year, though Newman said the company could provide an update later this year on whether buybacks might begin sooner. He also cited bolt-on acquisitions as a potential use of capital to support growth, emphasizing that capital deployment will remain subject to a disciplined review process.

About CVS Health (NYSE:CVS)

CVS Health Corporation is an American health care company headquartered in Woonsocket, Rhode Island. Founded in 1963 as Consumer Value Stores, the company has expanded from a chain of retail pharmacies into an integrated health care organization serving consumers, employers, health plans, government programs and health care providers.

CVS Health operates through several major businesses. Its Health Care Benefits segment, anchored by Aetna, provides health insurance products and related services for employers, individuals, Medicare and Medicaid members.

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The article "CVS Health Eyes Margin Recovery, Cash Flow as 2027 Headwinds Loom" was originally published by MarketBeat.

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