CVS Targets Low 3X Leverage Ratio: Here’s How It’s Going
CVS Health leverage ratio target set in 2021 aimed for a low 3X level to reduce debt and strengthen financial stability. This ratio is calculated by dividing Adjusted Net Debt by Adjusted EBITDA. The ratio decreased from 4.70 at the end of 2024 to 4.32 by March 2025. This has significantly enhanced the company’s objective of reducing debt risk and practicing financial discipline.
Stable dividends and robust cash flows
In the first quarter of 2025, CVS recorded operational cash flow of $4.6 billion and paid out $840 million in dividends. On August 1st, it announced a quarterly dividend of $0.665 per share.
It is noteworthy that CVS has no plans to repurchase shares in 2025, demonstrating its commitment to concentrating on debt reduction and financial stability.
Aetna’s Margin Recovery Efforts Gaining Ground
Margin pressure at Aetna, CVS’s insurance arm, has weighed on earnings due to Medicaid redeterminations and higher acuity. But now, CVS is advancing its multi-year effort to restore Aetna’s target margins through:
- Streamlining the prior authorization process
- Improving Medicaid rate negotiations
- Exiting ACA exchanges in underperforming states by 2026
These changes align with annual projections and support overall margin recovery.
How CVS Compares to Peers
- UnitedHealth Group (UNH): Leverage ratio of 1.99x EBITDA; $79.1B in marketable securities and $30.7B in cash.
- Cigna Group (CI): Debt-to-cap ratio at 43.1%; $8.33B in cash; repurchased $2.6B in shares this year.
Compared to these peers, CVS remains more leveraged, but it’s steadily improving.
CVS Stock Performance and Valuation
- Year-to-date gain: CVS shares are up 49.2%, beating the industry’s 2.8% decline
- Valuation: Forward five-year sales multiple of 0.22, below the industry average of 0.39
- Zacks Rank: #1 (Strong Buy)
- Value Score: A
Consensus estimates for 2025 and 2026 earnings remain bullish.
Source: Trading View
