Jefferies recently identified CVS Health as its preferred large-cap stock in the healthcare services sector, basing its positive view on a combination of management-run guidance, operating progress at the insurer Aetna, and improving cash generation and leverage metrics that could permit a resumption of share repurchases.
Investment case and valuation
Jefferies assigns CVS a Buy rating with a $120 price target, which the firm calculates as about 29% above the stock's prior closing price of $92.92. The brokerage's constructive stance is built around several company-level data points and management commentary, most notably an explicitly stated earnings-per-share floor of $8.44 for fiscal 2027 along with the prospect for upside beyond that level.
Management has indicated a likely timeline for buybacks to resume at the end of 2026 or in early 2027, a development Jefferies views as a mechanism that could provide additional support for the share price and add incremental earnings per share over time.
Aetna - central to the thesis
Jefferies highlights Aetna's substantial rebound as a core element of the thesis. Aetna produced roughly $2.4 billion in second-quarter adjusted operating income while reporting an 87.4% medical benefit ratio. The firm notes that, after adjusting for specific items, Aetna's underlying results outperformed expectations with Medicare performance leading the beat.
Year-to-date, Aetna has delivered more than $2 billion in year-over-year operating income gains, an outcome Jefferies attributes to effective pricing and cost actions. The firm underscores that fiscal 2027 Medicare Advantage bids have been modeled with elevated utilization - but that improved retention, a favorable membership mix, leading Star ratings and disciplined pricing should together drive further margin expansion.
Pharmacy and consumer trends
Jefferies points to meaningful momentum in the Pharmacy & Consumer Wellness division. Same-store prescription volumes rose 7% year-over-year in the second quarter, which the firm interprets as validation of the CostVantage initiative. Cost-based contracts are cited as improving reimbursement consistency, and fiscal 2026 performance in the segment is described as running ahead of expectations. The brokerage expects ongoing specialty prescription growth and improving healthcare delivery economics to help offset some pressures elsewhere in the business.
Reported results, cash flow and leverage
CVS reported stronger-than-expected second-quarter 2026 results, with adjusted earnings of $2.58 per share and revenues of $106.1 billion. The company raised its full-year guidance following the quarter.
On the cash flow front, CVS generated approximately $10.6 billion in operating cash flow in the first half of the year, prompting management to lift fiscal 2026 guidance to more than $11.5 billion. The company exited the second quarter with leverage below 3.3 times, a balance sheet position that Jefferies says supports the prospect for buyback resumption and additional earnings upside relative to current expectations.
Headwinds already reflected in guidance
Jefferies acknowledges that the Health Services segment faces headwinds into fiscal 2027 from pressures tied to 340B program dynamics and declines in Caremark membership. Importantly, the firm notes management has incorporated these challenges into the stated $8.44 EPS floor for fiscal 2027. Jefferies expects the negative effects to be at least partially offset by specialty pharmacy growth and improving economics in healthcare delivery.
Credit outlook
Following the second-quarter results and the company's improved leverage profile, credit rating action followed: Moody's updated CVS's outlook to positive from stable, citing progress on the health insurance turnaround and lower financial leverage as factors in its assessment.
Bottom line
Jefferies' bullish view on CVS rests on measurable operational improvements at Aetna, continued pharmacy volume strength, clearer cash generation and leverage metrics that open the door to buybacks, and management-provided guidance that establishes a conservative earnings floor for fiscal 2027. The brokerage sees these elements combining to support both margin expansion and share-price upside versus the recent closing level.