What CVS Health (CVS) Said on Its Q3 Earnings Call

Key Points

• CVS plans to split into two publicly traded companies, separating its retail pharmacy business from Aetna, Caremark and other health services. The tax-free separation is expected in the first half of 2028, with shareholders receiving shares in both companies.
• Third-quarter results strengthened: revenue exceeded $108 billion and adjusted EPS was $2.09, up more than 30% year over year. CVS raised its 2026 adjusted EPS outlook to at least $8.20 and plans to resume share repurchases in Q4.
• CVS forecast 2027 adjusted EPS of at least $8.65, while expecting Health Services earnings to hit a trough before returning to growth. Management said Medicare Advantage margins should continue improving, though medical cost trends remain elevated.

CVS Health NYSE: CVS plans to separate its retail pharmacy operations from its insurance and pharmacy services businesses, creating two publicly traded companies in a transaction expected to close in the first half of 2028.

The announcement came as the company reported third-quarter 2026 revenue of more than $108 billion and adjusted earnings per share of $2.09, up more than 30% from a year earlier. CVS also raised its full-year adjusted earnings outlook and said it plans to resume share repurchases in the fourth quarter.

Chairman and CEO David Joyner said the decision to split followed a strategic review and was made from a position of financial strength. He cited progress in the company’s Medicare recovery, retail pharmacy performance and balance sheet.

Two companies, with commercial ties

The business temporarily referred to as CVS Health will retain Aetna, Caremark and other pharmacy services, specialty pharmacy, Oak Street and Signify Health. Joyner will remain chairman and CEO of that company.

The second company, CVS Pharmacy, will include retail stores, mail order, MinuteClinic and Health100, the company’s AI-native consumer engagement platform. Prem Shah, currently group president of CVS Health, will become CVS Pharmacy’s CEO upon separation.

Joyner said the split would give each company a sharper focus and flexibility over capital allocation and technology. Both are expected to have investment-grade balance sheets, he said.

CVS expects the transaction to be tax-free for U.S. federal income tax purposes. It remains subject to conditions including final board approval, effectiveness of a Form 10 registration statement and customary tax confirmation. Shareholders will own shares in both companies after the separation.

Asked about potential lost benefits from separating retail pharmacy and Caremark, Joyner said the companies intend to preserve products developed together through commercial agreements. He said Health100 would also serve as a connection between the two businesses, with both committed to its development.

CFO Brian Newman said the company expects any stranded costs, public company costs and one-time expenses associated with the separation to be manageable. CVS did not provide a cost estimate on the call.

Quarterly earnings rise across segments

CVS reported nearly $4.2 billion in third-quarter adjusted operating income, with earnings growth across all three operating segments. Cash flow from operations was approximately $4.7 billion for the quarter and $15.3 billion for the first nine months of 2026.

Health Care Benefits generated approximately $900 million in adjusted operating income, up nearly $600 million from a year earlier. Its medical benefit ratio improved by about 150 basis points to 91.3%, primarily because of better underlying Medicare performance, Newman said. Medical cost trends remained elevated but were broadly in line with expectations.

Health Services adjusted operating income rose nearly 3% to $2.1 billion, helped by purchasing economics and pharmacy drug mix. Pharmacy and Consumer Wellness generated more than $1.6 billion in adjusted operating income, up over 10%, as same-store prescription volumes increased nearly 4%.

CVS ended the quarter with nearly $6 billion in cash at the parent and unrestricted subsidiaries. Newman said the company reached its leverage goal ahead of schedule, allowing it to resume share repurchases.

Higher outlook for 2026 and 2027

CVS raised its 2026 adjusted EPS guidance to at least $8.20 from a previous range of $7.90 to $8.10. It also forecast full-year revenue of at least $420 billion, adjusted operating income of at least $17.05 billion and cash flow from operations of at least $15.5 billion.

For 2027, the company expects adjusted EPS of at least $8.65. Newman said that outlook assumes share repurchases sufficient to offset dilution, rather than a larger earnings benefit from buybacks. Formal 2027 guidance is expected on the fourth-quarter earnings call.

CVS expects Health Services adjusted operating income of at least $7 billion in 2027, incorporating a decline in its 340B business and lower health plan client membership. Management expects 2027 to be a trough year for segment earnings, followed by a return to growth.

At Aetna, EVP Steve Nelson said Medicare Advantage was moving into profitable territory in 2026 but remained on a multiyear path back to target margins. CVS expects further margin improvement in 2027, alongside what Nelson described as modest growth, although medical cost trends remain elevated.

About CVS Health (NYSE:CVS)

CVS Health Corporation NYSE: CVS is a diversified health care company that provides pharmacy, insurance and health services in the United States. Its businesses serve consumers, employers, health plans and health care providers through pharmacies, benefit programs, insurance coverage and clinical care services.

The company's Pharmacy Services segment, led by CVS Caremark, manages prescription drug benefits for employers, insurers and government programs. CVS Pharmacy operates retail pharmacies and health-focused stores that dispense prescriptions and offer over-the-counter products, health and wellness merchandise, immunizations and related services.

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