Two Healthcare Heavyweights, One Winner: UnitedHealth or CVS Health?

CVS Health is currently favored over UnitedHealth (UNH) due to its strong Q1 earnings, reflected in a 31.6% EPS beat and improved margins, while UNH withdrew its 2025 guidance amid rising medical costs and a criminal investigation; CVS has raised its 2025 EPS guidance and is implementing cost-saving measures, including closing 271 retail stores, and its stock has outperformed UNH year-to-date, jumping 49.4% compared to UNH's 39% plunge.

Analysis

CVS Health Corporation (CVS) demonstrated robust Q1 performance, significantly outpacing UnitedHealth Group (UNH), with CVS reporting a 31.6% earnings per share (EPS) beat and an adjusted EPS of $2.25, a substantial increase from $1.31 in the prior year. This was supported by an improved medical benefit ratio in its Health Care Benefits segment, which fell over 300 basis points year-over-year to 87.3%, indicating effective cost control. Consequently, CVS raised its 2025 EPS guidance to $6.00-$6.20 and announced plans for over $500 million in savings from the closure of 271 retail stores. In stark contrast, UNH, despite Q1 revenues of $109.6 billion, missed earnings expectations and withdrew its 2025 guidance, citing escalating medical costs which surged 11.7% in Q1 and are anticipated to grow by more than 16% in 2025, alongside margin pressures and the emergence of a criminal investigation into alleged Medicare fraud. While UNH's core integrated model remains a strength, evident by a 1.9% growth in medical members to 50.1 million, its immediate outlook is clouded by these challenges, an average earnings surprise of only 1.2% over the past four quarters, and a new CEO acknowledging missteps. Zacks Consensus Estimates reflect this divergence: CVS has seen upward EPS revisions and a projected 12.7% earnings increase for 2025, while UNH faces downward revisions and an anticipated 19.5% EPS decline for 2025. Valuation metrics further favor CVS, trading at a forward P/E of 10.31X compared to UNH's 12.98X; CVS's stock has surged 49.4% year-to-date, while UNH's shares have declined 39%. CVS also offers a higher dividend yield of 3.97% versus UNH's 2.72%, further underscoring its current comparatively stronger financial position and outlook.

Key Decisions for Investors

• Given CVS Health's strong Q1 earnings momentum, improved cost management evidenced by a falling medical benefit ratio, raised 2025 EPS guidance, and more attractive valuation at a forward P/E of 10.31X, investors might consider it a favorable investment relative to UnitedHealth Group.
• Investors should approach UnitedHealth Group with caution due to significant headwinds including sharply rising medical costs, the withdrawal of its 2025 earnings guidance, ongoing margin pressures, and a pending criminal investigation into Medicare fraud, all contributing to its recent 39% YTD stock price decline.
• Closely monitor UnitedHealth Group for tangible improvements in medical cost control, a reinstatement of clear forward guidance, and resolution of legal uncertainties before reassessing its investment Aotential.
• While both companies' PBM segments (Optum Rx for UNH and Caremark for CVS) face potential regulatory pressures, CVS's current operational outperformance, diversified model, and proactive cost-saving measures may provide a better cushion against these industry-wide risks.