CVS Health stock (NYSE: CVS) has emerged as one of many high performers this 12 months, appreciating practically 50%, considerably outpacing the broader S&P500 index which has declined 4%. Buyers seem optimistic that the corporate could overcome its challenges following final 12 months’s 40% inventory worth decline, which was primarily pushed by rising medical prices impacting profitability.
A number of components have contributed to renewed investor confidence, together with the corporate’s strategic initiatives centered on operational effectivity and price discount. Moreover, latest govt modifications have been acquired favorably by buyers. The corporate has appointed Steve Nelson, former CEO of UnitedHealthcare division at UnitedHealth Group, as the brand new head of Aetna. Additionally, David Joyner changed Karen Lynch as CVS’s new Chief Government Officer in October final 12 months. Market sentiment additionally means that the Trump administration could implement extra favorable pricing constructions for insurance coverage corporations protecting senior residents below non-public plans, probably benefiting corporations like CVS.
Regardless of these optimistic developments, one ought to contemplate potential draw back eventualities. How would you react if CVS inventory skilled a 40% or higher decline within the coming months? Whereas this will appear inconceivable, historic precedents point out such eventualities are attainable. At the moment, broader markets are experiencing a selloff amid rising recession issues within the U.S., partly attributed to President Donald Trump’s tariffs on key buying and selling companions.
The vital consideration is that in financial downturns, CVS inventory might expertise substantial valuation deterioration. Proof from 2020 demonstrates that the inventory misplaced over 25% of its worth inside a number of quarters. The affect was much more profound throughout the 2008 recession, with CVS dropping 45% of its worth. With CVS inventory having already appreciated roughly 50% this 12 months to $65, buyers ought to ponder whether or not market situations might reverse this upward momentum. If related financial pressures manifest, this might probably drive the inventory under $40. Nevertheless, for buyers who search decrease volatility than particular person shares, the Trefis High-Quality portfolio presents another — having outperformed the S&P 500 and generated returns exceeding 91% since its inception.
Why Is It Related Now?
Whereas CVS demonstrates promising potential via its profitability enchancment initiatives, buyers ought to rigorously contemplate broader financial dangers of their analysis. As a serious medical health insurance supplier, CVS Well being faces vulnerability to growing prices of drugs and medical provides, which straight affect healthcare bills and consequently place strain on the corporate’s insurance coverage operations.
Though inflation issues have moderated, they continue to be a major consideration. President Trump’s assertive insurance policies concerning tariffs and immigration have renewed apprehensions about potential inflationary pressures. This uncertainty, coupled with the U.S. financial system’s susceptibility to contraction, heightens recession prospects.
The worldwide geopolitical atmosphere has grow to be more and more unstable, characterised by the persistent Ukraine-Russia battle, heightening commerce tensions, and deteriorating relationships with conventional allies together with Canada, Mexico, and European nations. These exterior components introduce substantial further dangers to the market panorama. See our analysis here on the macro picture. Given these complicated dynamics, buyers can be prudent to take care of vigilant monitoring of macroeconomic indicators when evaluating positions in CVS or related healthcare sector investments.
How Resilient Is CVS Inventory Throughout A Downturn?
CVS inventory has fared barely higher than the benchmark S&P 500 index throughout among the latest downturns. Frightened in regards to the affect of a market crash on CVS inventory? Our dashboard How Low Can Shares Go Throughout A Market Crash captures how key shares fared throughout and after the final six market crashes.
Inflation Shock (2022)
• CVS inventory fell 20.7% from a excessive of $110.83 on 8 February 2022 to $87.84 on 12 October 2022, vs. a peak-to-trough decline of 25.4% for the S&P 500
• The inventory is but to get well to its pre-Disaster excessive
• The best the inventory has reached since then is $103.79 on 12 December 2022 and at present trades at round $66
COVID-19 Pandemic (2020)
• CVS inventory fell 27.3% from a excessive of $71.94 on 20 February 2020 to $52.30 on 16 March 2020, vs. a peak-to-trough decline of 33.9% for the S&P 500
• The inventory totally recovered to its pre-Disaster peak by 16 November 2020
International Monetary Disaster (2008)
• CVS inventory fell 45.6% from a excessive of $44.12 on 5 June 2008 to $23.98 on 9 March 2009, vs. a peak-to-trough decline of 56.8% for the S&P 500
• The inventory totally recovered to its pre-Disaster peak by 16 February 2012
Defending Wealth
CVS Well being’s Revenues have seen sturdy progress, reaching a mean annual improve of 8.5% over the previous three years, outpacing the S&P 500’s 6.3% progress throughout the identical interval. However, this appears to be mirrored within the firm’s valuation. CVS inventory at present trades at roughly 12x trailing earnings, which represents a slight premium in comparison with its five-year common P/E ratio of 10x.
Notably, the corporate’s medical value ratio has elevated dramatically from 83.8% in 2022 to 92.5% in 2024, representing a considerable deterioration on this key profitability metric. Primarily based on present business tendencies and company-specific components, a near-term return to the extra favorable 2022 ranges seems unlikely.
Given the probabilities of a slowdown in progress and broader financial uncertainties, ask your self this query: Do you propose to carry your CVS inventory now, or will you panic and promote if it begins to drop to $50, and even decrease ranges? Holding on to a declining inventory isn’t straightforward. Trefis collaborates with Empirical Asset Administration—a Boston space wealth supervisor—whose asset allocation methods yielded optimistic returns throughout the 2008-09 interval when the S&P misplaced greater than 40%. Empirical has built-in the Trefis HQ Portfolio on this asset allocation framework to offer shoppers with higher returns and diminished threat in comparison with the benchmark index; providing a much less risky expertise, as mirrored within the HQ Portfolio efficiency metrics.
| Returns | Mar 2025 MTD [1] |
2025 YTD [1] |
2017-25 Complete [2] |
| CVS Return | 0% | 48% | 7% |
| S&P 500 Return | -5% | -4% | 152% |
| Trefis Strengthened Worth Portfolio | -6% | -8% | 508% |
[1] Returns as of three/16/2025
[2] Cumulative complete returns because the finish of 2016
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The views and opinions expressed herein are the views and opinions of the writer and don’t essentially mirror these of Nasdaq, Inc.
