Two Healthcare Heavyweights, One Winner: UnitedHealth or CVS Health?
The healthcare sector is dominated by massive players, but few are as influential as UnitedHealth Group Incorporated UNH and CVS Health Corporation CVS. Both combine insurance and care delivery, with extensive footprints, UNH via UnitedHealthcare and Optum, and CVS through its retail pharmacies, PBM and Aetna insurance. With the sector's ongoing shake-up, from rising costs to regulatory shifts, it's high time to evaluate which stock stands out today.
There are compelling cases for both: UnitedHealth's size, scale, recent drop in prices and integration appeal to growth investors, while CVS' diversification and turnaround strategy resonate with value-seekers. Let's dive deep and closely compare the fundamentals to determine which one is the stronger investment today.
The Case for UnitedHealth
UNH remains a massive force, delivering first-quarter revenues of $109.6???billion and adjusted net income of $6.6???billion, maintaining a 6% net margin. Wall Street had higher earnings expectations, and the company failed to properly project medical costs, prompting it to withdraw its 2025 guidance, revealing some cracks beneath the surface. Management acknowledged missteps in adapting to new Medicare Advantage risk models, which hurt margins.
It missed earnings estimates once in the past four quarters and beat on the other occasions, with an average surprise of 1.2%.
On the bright side, UNH's core strengths remain intact. UnitedHealthcare and Optum's cross-market integration remains effective, giving UNH a competitive moat. A 1.9% increase to 50.1 million medical members in the first quarter reflects continued expansion.
However, ongoing margin pressure, elevated medical costs and ambiguity on earnings guidance suggest UNH may struggle to reignite its long-term performance trajectory. Medical costs surged 11.7% in the first quarter alone, following a 9.2% rise in 2024. We anticipate that medical expenses will grow by more than 16% in 2025. Higher-than-expected patient volumes, particularly high-acuity cases, have further strained profitability. Also, a Wall Street Journal report revealed a criminal investigation into alleged Medicare fraud.
Optum Rx, UNH's pharmacy benefit manager, may also face headwinds from regulatory moves targeting pharmacy benefit management's ('PBM') pricing power. President Trump's "most-favored nation" executive order will likely affect 'middlemen' and facilitate the direct sale of drugs to patients. CVS Health's PBM, Caremark, also falls in the target zone.
Nevertheless, the new CEO of UNH, Steve Hemsley, began his return to leadership by issuing a rare apology to investors following the company's first earnings miss in almost two decades.Hemsley pledged to rebuild shareholder trust and tackle escalating expenses head-on.
The Case for CVS
CVS reported first-quarter revenues of $94.6???billion and net income of $1.8???billion, and adjusted EPS of $2.25, well ahead of last year's $1.31, beating the Zacks Consensus Estimate by 31.6%. Several positive indicators stand out: The Health Care Benefits segment's medical benefit ratio dropped to 87.3%, down more than 300 bps year over year. This reflects better cost control in Medicare Advantage.
It beat earnings estimates in each of the past four quarters with an average surprise of 18.1%.
In the first quarter of 2025, the company delivered solid Medicare results, supported by higher Medicare Advantage star ratings for the 2025 payment year. Management remains confident in its 2025 pricing strategy, which reflects sensible assumptions regarding utilization trends.
CVS' diversified model, spanning insurance, PBM and retail/clinics, is showing solid momentum, with steady pharmacy claims, rising retail script volumes and improved adjusted operating income across all segments. Its innovative initiatives, such as CVS CostVantage, aim to ease reimbursement pressures in retail pharmacy by enhancing pricing transparency.
CVS' partnerships (like Wegovy & Novo Nordisk) and investments in primary care and digital are gaining traction. The company is also advancing technologies like voice automation, AI, and robotics to cut costs and enhance customer experience. As part of its 2025 strategy, CVS plans to close 271 retail stores, targeting over $500 million in cost savings.
In contrast to UNH, CVS is executing a clear turnaround: margins are improving, guidance has been raised (with adjusted EPS forecast now $6.00-$6.20, up from $5.75-$6.00), and it is gaining analyst confidence. CVS's higher dividend yield (3.97%) means it returns more cash to shareholders relative to its stock price compared to UnitedHealth's 2.72%.
How Do Zacks Estimates Compare for UNH & CVS?
Zacks Consensus Estimates favor CVS at this stage. It has seen upward revisions in EPS estimates for the current year, while UNH has witnessed multiple downward revisions. The consensus estimate for CVS' 2025 earnings indicates a 12.7% increase from a year ago, while the same for revenues suggests 3.5% growth. On the other hand, the Zacks Consensus Estimate for UNH's 2025 revenues indicates 12.3% year-over-year growth, but the same for EPS signals a massive 19.5% decline.
Valuation: UNH vs. CVS
Valuation also favors CVS. While UNH trades at a forward P/E of 12.98X, CVS trades at a more modest 10.31. This valuation gap gives CVS Health a more attractive risk-reward profile. In contrast, UNH's premium pricing could limit near-term upside unless it delivers clear margin improvements.
Price Performance Comparison
Over the year-to-date period, UNH faced selloffs tied to medical costs and investigation concerns. Its shares plunged 39% during the same time. Meanwhile, CVS shares have jumped 49.4%, outperforming the broader industry and the S&P 500 Index, supported by stronger earnings momentum and clearer guidance.
Price Performance – UNH, CVS, Industry & S&P 500
Conclusion
Though UnitedHealth remains a healthcare powerhouse with unmatched integration and scale, recent cost-control misfires and guidance uncertainties weigh on its near-term outlook. On the other hand, CVS is executing a well-defined turnaround, its margins are improving, positive estimate revisions are rolling in, and shares remain attractively valued.
For investors seeking current upside potential and a better value play, CVS Health clearly holds the edge. Its diversified model, execution on cost control and analyst upgrades make it a stronger pick in today's healthcare landscape.
UnitedHealth currently carries a Zacks Rank #5 (Strong Sell), while CVS Health has a Zacks Rank #2 (Buy).
You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
5 Stocks Set to Double
Each was handpicked by a Zacks expert as the #1 favorite stock to gain +100% or more in the coming year. While not all picks can be winners, previous recommendations have soared +112%, +171%, +209% and +232%.
Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.
Today, See These 5 Potential Home Runs >>
UnitedHealth Group Incorporated (UNH): Free Stock Analysis Report
CVS Health Corporation (CVS): Free Stock Analysis Report
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