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CVS Health (CVS +13%) maintains its glow, gapping higher on better-than-expected earnings and revenue in Q4. The pharmaceutical and health insurance giant also returned to issuing guidance following last quarter's brief pause, projecting FY25 adjusted EPS in-line with consensus. Given CVS's past cost-related headwinds, with medical costs constantly trending higher, earnings guidance consistent with analysts' forecasts is a relief. Incorporating today's jump, CVS has rebounded by over +35% from December lows, reflecting mounting enthusiasm over the company's several encouraging trends since CEO David Joyner replaced Karen Lynch in late October.

• CVS registered adjusted EPS of $1.19 in Q4, a 9% sequential bump, on a 2% sequential and 4% yr/yr increase in revenue to $97.71 bln. The company's Health Care Benefits segment, which includes its insurance division Aetna, led top-line growth in the quarter, rising by 23% yr/yr. Tugging on this growth was Health Services, composed of CVS's health care banners, such as Oak Street and Signify, which inched 4% lower. CVS's Pharmacy & Consumer Wellness segment -- its retail division -- enjoyed an 8% lift in total revenue, aided by increased prescription volumes.
• Following his first 100 days as CEO, David Joyner outlined four strategic areas CVS will focus on this year. The first is to turn Aetna around, restoring the business to 3-5% target margins. Aetna weighed heavily on profitability during 2024 due to elevated utilization and higher acuity from Medicaid redeterminations. CVS is confident it can stabilize this business. Part of this involves shrinking its Medicare Advantage (MA) membership by a high single-digit percentage yr/yr. Unlike peer Humana (HUM), this was consistent with CVS's commentary since last summer.
• The second and third pillars involve making healthcare more affordable and investing in emerging technologies to drive efficiency. AI is playing a role in both of these initiatives as CVS leverages the technology to speed up turnaround times and reduce member frustration. The fourth initiative is to stay disciplined with its capital, emphasizing a stronger balance sheet. CVS noted that it is committed to prudent financial policies, including maintaining its current annual dividend yield of 4.2%.
• Looking ahead, CVS expects FY25 adjusted EPS of $5.75-6.00, representing an 8% uptick at the midpoint. However, compared to FY23, when CVS posted adjusted EPS of $8.74, the company has a long road ahead to make up lost ground last year.

Cutting costs will be central to CVS reaching its FY25 earnings target this year. The most influential driver of margin improvement will be reducing its medical benefit ratio (MBR), which measures the percentage of premiums used to cover medical expenses -- a lower number is better. In Q4, CVS's MBR swelled by 630 bps yr/yr to 94.8%, driven primarily by MA. Thus, improving its MA business will be pivotal this year.

The company has endured many setbacks over the past year, causing it to shutter hundreds of stores and shift attention to stabilizing its insurance division. However, investors are encouraged by CEO David Joyner's game plan, which could be the key to producing a long-awaited comeback.