CVS or UnitedHealth: Which Stock Is a Better Buy Ahead of Q2 Earnings?

CVS Health delivered a robust first-quarter performance, driven by segment growth and improved Medicare Advantage metrics, leading to a raised full-year EPS guidance and a 2.5% share gain in Q2. In contrast, UnitedHealth missed Q1 earnings and revenue expectations due to elevated medical costs and a challenging Medicare funding environment, resulting in a significant cut to its 2025 EPS outlook and a 40% share plummet in Q2. Ahead of Q2 earnings, CVS is positioned as a stronger investment, reflecting its resilience, disciplined capital allocation, and a more attractive valuation at 8.88x forward P/E compared to UnitedHealth's 11.98x.

Analysis

A comparative analysis ahead of second-quarter earnings reveals a sharp divergence in performance and outlook between CVS Health and UnitedHealth. In the first quarter, CVS demonstrated operational resilience, raising its full-year EPS guidance on the back of strong growth across segments, particularly a notable increase in adjusted operating income within its Health Care Benefits division to $1.99 billion from $732 million a year ago. This performance, coupled with a strategic review of its Oak Street Health acquisition to enforce capital discipline, supported a 2.5% share price gain in the months leading up to the Q2 report. In stark contrast, UnitedHealth faced significant headwinds, missing Q1 estimates and cutting its 2025 EPS outlook from approximately $29.50-$30.00 to $26.00-$26.50 due to unexpectedly high medical costs in its Medicare Advantage business, which its CEO labeled "unacceptable." This led to a 40% decline in UNH's share price over the same period. While both companies face rising Medicare costs and are projected to report year-over-year EPS declines in Q2 (19.7% for CVS, 28.8% for UNH), CVS appears better positioned. From a valuation perspective, CVS trades at a more attractive 8.88x forward P/E multiple compared to UNH's 11.98x, presenting a significant discount despite its stronger recent performance.

Key Decisions for Investors

• Investors may consider CVS the more favorable investment ahead of Q2 earnings, given its operational stability, demonstrated capital discipline, and a significant valuation discount at an 8.88x forward P/E compared to UNH's 11.98x.
• For CVS, the key risk to monitor in the Q2 report is the medical benefit ratio (MBR), as management has explicitly warned that elevated Medicare Advantage costs could continue to compress margins.
• Given UNH's severe 2025 guidance cut and the 40% share price drop during the quarter, investors should exercise caution until the company provides clear evidence of successfully managing its elevated medical cost trends.
• The projected double-digit Q2 EPS declines for both companies signal that rising medical utilization is a sector-wide pressure, warranting a cautious outlook on the entire managed care space, not just UnitedHealth.