CVS Health Raises 2026 EPS Guidance to at Least $8.20

CVS Health (NYSE: CVS ) reported third-quarter financial results on Wednesday. The transcript from the company's third-quarter earnings call has been provided below. This transcript is brought to you APIs. For real-time access to our entire catalog, please visit for a consultation.

View the webcast at Summary CVS Health announced its intention to separate into two independent publicly traded companies: CVS Health (healthcare solutions) and CVS Pharmacy (retail and community healthcare). The company reported adjusted operating income of $4.2 billion and adjusted earnings per share of $2.09 for the third quarter, raising full-year 2026 EPS guidance to at least $8.20. Cash flow from operations is expected to reach at least $15.5 billion for 2026, with significant progress in strengthening the balance sheet, enabling a resumption of the share repurchase program.

The Health Care Benefits segment showed significant improvement with a 91.3% medical benefit ratio, and adjusted operating income of $900 million, driven by strong Medicare performance. CVS Health is focusing on affordability and access, emphasizing the integration of technology and maintaining strong performance across its segments. The strategic separation is aimed at increasing focus, agility, and simplicity, with each company expected to have solid investment-grade credit ratings and tailored capital allocation strategies.

Future guidance for 2027 indicates an adjusted EPS of at least $8.65, reflecting approximately 13% growth, with continued margin improvement expected in the Health Care Benefits segment. Management emphasized that the decision to separate was made from a position of strength, with both CVS Health and CVS Pharmacy positioned as leaders in their respective markets. Full Transcript OPERATOR Hello and welcome to CVS Health's third quarter 2026 earnings call. We ask that you please hold all questions until the end of the prepared remarks, at which time you will be given instructions for the question and answer session.

As a reminder, this conference is being recorded today. If you have any objections, please disconnect at this time. I would now like to pass the call to Larry McGrath. Larry, please proceed.

Larry McGrath (Executive Vice President of Capital Markets) Good morning and welcome to the CVS Health third quarter 2026 earnings and business update call and webcast. I'm Larry McGrath, executive vice president of Capital Markets at CVS Health. I'm joined this morning by David Joyner, President and Chief Executive Officer, and Brian Newman, Chief Financial Officer. Following our prepared remarks, we'll host a question and answer session that will include additional members of the leadership team.

Our press releases and slide presentations have been posted to our website along with our Form 10Q filed this morning with the SEC. Today's call is also being broadcast on our website. During this call, we'll make certain forward looking statements. Our forward looking statements are subject to significant risks and uncertainties that could cause actual results to differ materially from currently projected results.

We strongly encourage you to review the reports we file with the SEC regarding these risks and uncertainties, in particular those that are described in the cautionary statement concerning forward looking statements and risk factors in our most recent annual report on Form 10K, our quarterly report on Form 10Q filed this morning, and our recent filings on Form 8K, including this morning's earnings press release. During this call, we'll use certain non GAAP measures when talking about the company's financial performance and financial condition.

And you can find a reconciliation of these non GAAP measures in this morning's press release and in the reconciliation document posted to the investor relations portion of our website. With that, I'd like to turn the call over to David. David Joyner (President and Chief Executive Officer) Thank you, Larry, and good morning, everyone. Our organization has a long and distinguished history and in my 40 years at this company, there has been one constant.

We act, we evolve, and we proactively shape the future of health care. Today we announced our intention to separate into two independent publicly traded companies. This decision marks the next important chapter in the evolution of CVS Health. We are creating two distinct leaders in health care.

The first will be a healthcare solutions company that brings together medical, pharmacy, specialty and care delivery capabilities integrated where it matters. In the interim period, we are referring to this business as CVS Health. The second company will be a leading national retail, pharmacy and community healthcare company. This business will be named CVS Pharmacy.

Both companies will be led by experienced leadership teams, have a clear right to win in their respective markets and we expect will be supported by solid investment grade balance sheets enabling each company to pursue disciplined and tailored capital allocation. We take this action from a position of strength which you can see in the consistent progress we made since 2024 as well as in the third quarter results and the updated guidance we announced this morning. This quarter we generated adjusted operating income of $4.2 billion and adjusted earnings per share of $2.09.

Building on our continued strong performance so far this year, we are raising our full year 2026 adjusted earnings per share guidance to at least $8.20, an increase from our prior range of $7.90 to $8.10. We are also updating our full year expectation for cash flow from operations to at least $15.5 billion with this latest update. Our 2026 adjusted EPS guidance is now more than $1 above our initial expectations for 2026 and our cash flow from operations outlook has increased by more than $5.5 billion for the year. This progress clearly reflects our growing momentum.

I'll now ask Brian to provide more details on the results this quarter, our updated full year 2026 guidance and perspective on the factors shaping our 2027 expectations. I will then come back to provide more details on our announcement. Brian. Brian Newman (Chief Financial Officer) Thank you, David, and good morning.

I will cover four key topics in my remarks this morning. First, an update on our third quarter results. Second, I'll discuss cash flow, the balance sheet, and capital deployment. After that, I will provide an updated financial outlook for 2026.

And finally, I will share some headwinds and tailwinds as we look ahead to 2027. Our third quarter results demonstrate the discipline with which we continue to manage the enterprise. We once again delivered on our commitments and raised our full year outlook for revenue, adjusted EPS, and cash flow from operations. Our execution has significantly strengthened our balance sheet, allowing us to achieve target leverage ahead of schedule and will enable us to resume our share repurchase program in the fourth quarter.

Let me start by highlighting some of our enterprise results. In the quarter we generated over $108 billion of revenue and delivered nearly $4.2 billion of adjusted operating income. Once again, reflecting earnings growth across all of our operating segments, we delivered adjusted EPS of $2.09, an increase of over 30% from the prior-year quarter. And finally, in the quarter we generated cash flow from operations of approximately $4.7 billion, bringing our year-to-date cash flow from operations to $15.3 billion.

Turning now to each of our segments: In Health Care Benefits, we continue to make strong progress in our return to target margins. In the quarter we delivered adjusted operating income of approximately $900 million, an increase of nearly $600 million from the prior-year quarter. In the quarter, our medical benefit ratio was 91.3%, an improvement of approximately 150 basis points from the prior year. These results were primarily driven by improved underlying performance in our Medicare business.

Across our businesses, we continue to successfully navigate elevated trends that remain above historical levels throughout the industry, but were broadly in line with our expectations. Performance in our Medicare book modestly exceeded our expectations, driven by pockets of favorability. As a result of strong medical cost management and disciplined pricing, we remain confident in the adequacy of our reserves. In our Health Services segment, we continue to execute against our objectives.

During the quarter we delivered adjusted operating income of $2.1 billion, an increase of nearly 3% from the prior-year quarter, primarily driven by improved purchasing economics and pharmacy drug mix, partially offset by continued pharmacy client price improvements. Results in our pharmacy services business were in line with our expectations during the quarter, including performance in both our 340B business and rebate guarantees. Healthcare Delivery also performed as expected as we continue to drive improvement in the business. Our Pharmacy and Consumer Wellness segment delivered another strong quarter.

We generated adjusted operating income of over $1.6 billion, an increase of over 10% from the prior year, primarily driven by core pharmacy strength, including a nearly 4% increase in same-store prescription volumes, partially offset by continued business investments and the impact of consumer dynamics. Turning now to cash flow and the balance sheet, year to date, we have generated cash flow from operations of $15.3 billion, reflecting strong earnings as well as the impact of improvements in working capital. So far in 2026 we have returned nearly $2.6 billion to our shareholders through our shareholder dividend.

We ended the quarter with nearly $6 billion of cash at the parent and unrestricted subsidiaries. As I mentioned earlier, we have made significant progress strengthening our balance sheet and have achieved our leverage goal ahead of schedule. This improved position, combined with our strong cash flow, will enable us to resume our share repurchase program in the fourth quarter. Shifting now to our guidance for 2026, we are increasing our full year 2026 guidance for adjusted EPS to at least $8.20, an increase of $0.20 from the midpoint of our previous outlook.

We now also expect our full year total revenues to be at least $420 billion. In our Health Care Benefits segment we now expect full year adjusted operating income to be at least $5.4 billion, an increase of $200 million relative to the midpoint of our prior outlook. We now expect our full year MBR to be in the lower half of our previously discussed range of 89.75% plus or minus 25 basis points. This outlook continues to maintain a respectful and prudent view of medical cost trends.

In our Pharmacy and Consumer Wellness segment, we now expect full year adjusted operating income of at least $6.5 billion, an increase of $100 million from our prior guidance and nearly 8% growth from the prior year. This reflects our strong performance in the quarter and our updated expectations for the remainder of the year. We are also reiterating our full year adjusted operating income outlook for our Health Services segment. In aggregate, we now expect full year enterprise adjusted operating income to be at least $17.05 billion.

We are also increasing our outlook for full year cash flow from operations to at least $15.5 billion, reflecting our updated earnings outlook as well as the impact of working capital improvements and the timing of certain payments. Cash generation has long been a strength of this enterprise, and we continue to build on that strength as we deliver on our embedded earnings and unlock further working capital efficiencies. You can find additional details on the components of our updated 2026 guidance on our Investor Relations website.

Turning now to 2027, consistent with past practice, we expect to provide formal 2027 guidance on our fourth quarter earnings call early next year. Today I will share an update on some of the key headwinds and tailwinds we are considering for 2027. Starting first with our Health Care Benefits business, we expect another year of meaningful margin improvement as Aetna makes strong progress on its path back to target margins once again.

This improvement will be largely driven by the deliberate actions we took in our Medicare Advantage business along with continued disciplined underwriting and pricing across our businesses in response to the elevated trend environment we expect will persist in 2027. In our Health Services segment, we expect to generate adjusted operating income of at least $7 billion. This includes our previously discussed expectations for a year-on-year decline in our 340B business as well as headwinds from the impact of a less robust selling season and health plan client membership attrition.

We also expect tailwinds from continued strength in specialty and another year of improvement in our Healthcare Delivery business. We continue to expect our 340B business to largely stabilize by the end of next year, and we have confidence as we enter the 2028 PBM selling season. We are confident 2027 will reflect trough earnings for the segment, and we expect to return to growth from there. In our Pharmacy and Consumer Wellness business, we expect adjusted operating income to grow low single digits off our current 2026 guidance of at least $6.5 billion, driven by continued pharmacy strength.

This marks the third consecutive year of growth in earnings for this segment. Our updated outlook reflects the progress we've made differentiating our business and solidifying our position as the best-run national pharmacy while maintaining a prudent view of consumer dynamics. Pulling it all together and reflecting the strong performance we saw in the third quarter, we now expect to deliver at least $8.65 in adjusted EPS in 2027, reflecting approximately 13% growth off an adjusted 2026 baseline. Our strong results demonstrate the progress we're making across the enterprise.

We've strengthened our financial position, created greater capacity for capital deployment, and built increased confidence in the long-term expectations we outlined at Investor Day. We now believe we will be in the high end of our mid-teens adjusted EPS CAGR through 2028. Importantly, these expectations remain grounded in the same guidance philosophy of establishing credible targets, delivering with disciplined execution, and highlighting opportunities for outperformance. We will continue delivering on our say-do ratio, and that discipline will remain as we progress towards separation.

With that, I'll now turn the call back over to David. David Joyner (President and Chief Executive Officer) Thank you, Brian. As Brian highlighted, we are executing against our strategy and our businesses continue to deliver durable results. Today we announced that we are building on that momentum.

CVS Health is taking an important step in its evolution to create two independent publicly traded companies. Each of the two companies will remain a leader in their respective markets, powered by the right assets, the right focus, and the ability to adapt and move faster. We can take this strategic action today because of our tremendous progress since 2024. We rebuilt our leadership team and instilled a clear culture of accountability, excellence, and execution across the organization.

We significantly improved our financial performance, strengthened our balance sheet, and reached our target leverage ratio ahead of schedule, creating capacity for disciplined capital deployment. We expanded our technology capabilities across our enterprise, thoughtfully embedding AI throughout our businesses and creating a differentiated foundation to simplify and improve the healthcare experience. As we've consistently demonstrated, we are making great strides delivering against our goals while remaining focused on improving the health and care of the 185 million people we serve. As we have advanced our strategy, the environment around us is constantly changing.

We will be better positioned to address this changing environment as two strong independent health care leaders. Following a thoughtful and deliberate strategic review by the Board and senior management, we have a structure and plan that are built to win and represent the best path to create value over the long term. As we announced, CVS Health will retain Aetna, Caremark and Pharmacy Services, Specialty Pharmacy, Oak Street, and Signify Health.

This enables us to maintain and expand integration where it matters, combining the tools necessary to improve affordability within medical and pharmacy benefits and deliver care to high acuity populations, including in Medicare and Specialty Pharmacy. CVS Pharmacy will be the leading national retail pharmacy and community health care company. It will include our retail pharmacy stores, mail order, MinuteClinic, and Health100, our AI-native integrated healthcare engagement platform for consumers. The rationale for the separation is simple with four clear benefits.

First, focus. Each company will have an experienced, dedicated leadership team that can concentrate on the areas where it has the greatest opportunity to create value. The same mission, sharper focus. Second, capital allocation.

Each company is expected to have a solid investment grade capital structure and strong free cash flow. This will enable tailored capital allocation more closely aligned with each company's strategy and growth opportunities. What will not change is the discipline that each company demonstrates in the deployment of capital. Third is agility.

Each company will have greater flexibility to adopt the technologies that best fit its needs, improve efficiency, and more effectively adapt to the regulatory and other external dynamics.