During the October 6 episode of Mad Money, Jim Cramer examined whether CVS Health Corporation’s (NYSE:CVS) turnaround still has room to run after the stock’s sharp retreat from its summer highs. CVS ranked ninth among 10 stocks screened for a potential bear market. The criteria behind its inclusion offer another way to assess the turnaround beyond its earnings multiple.
The Recovery Has Continued Despite the Selloff
CVS Health Corporation reported second-quarter revenue of $106.1 billion, up 7.3% year over year. Adjusted EPS increased to $2.58 from $1.81, while GAAP diluted EPS rose to $2.31 from $0.80. The insurance business’s medical benefit ratio improved to 87.4% from 89.9%, highlighting better government-business performance and the absence of a prior-year premium deficiency reserve. The company raised its full-year adjusted EPS guidance to $7.90 – $8.10 and operating cash flow outlook to at least $11.5 billion. Management’s early commentary placed a reasonable floor under 2027 adjusted EPS at $8.44. Cramer’s confidence predates the latest selloff. His earlier “own it, don’t trade it” assessment of CVS paired Aetna’s recovery with a closer look at the pressures already emerging for 2027.
The improvement also exceeded Wall Street’s expectations, earning CVS a place among the quarter’s biggest earnings winners. Its entry shows how far analysts’ forecasts lagged the reported result. For Cramer, those improvements deserve more attention, as he said:
They (management) really stressed that despite whatever new issues Caremark is facing, the earnings growth story will remain on track, but none of that has been able to help the stock find its footing.
Caremark Faces More Than a Temporary Setback
One uncertainty is Centers for Medicare & Medicaid Services’ proposed change to Medicare hospital outpatient reimbursement for drugs acquired through the 340B program. Its July proposal would pay average sales price minus 33.4%, using findings from a hospital acquisition-cost survey. This concerns Medicare payments to hospitals, with potential consequences for CVS’s related business. It is not a direct across-the-board reduction in Caremark’s reimbursement. The proposal should also be distinguished from an implemented payment change.
Separately, the FTC’s July settlement announcement outlined changes to Caremark’s standard offerings, including separating manufacturer fees from drug list prices, greater transparency, and options to move away from rebate guarantees and spread pricing. These changes reach beyond disclosure and affect how PBM services are priced. CVS also noted that Caremark membership would decline in 2027 as contracts change and some insurance clients withdraw from markets. Caremark’s challenge is to keep customers while protecting its profits as the new pricing arrangements take effect.
Has the Price Fallen Further Than the Earnings Outlook?
Cramer’s bullish case rests on the difference between a possible earnings setback and the size of the selloff, as he said:
The stock has plunged from $110 to $86. A possible 5% hit to next year’s earnings should not send a stock down 22%, knocking nearly $30 billion off the company’s market cap, especially not when CVS remains very strong.
Using the October 7 closing price of $87.95 and the $8 midpoint of CVS’s 2026 adjusted EPS guidance, the stock trades at approximately 11x this year’s projected adjusted earnings. For comparison, Cigna’s $278.51 closing price represents approximately 9.1x its 2026 adjusted earnings guidance floor of $30.45. These calculations use company outlooks for the same calendar year. CVS’s multiple is modest, but it is not the lowest among comparable insurance and pharmacy-benefit businesses. CVS also appeared in an earlier selection of stocks for a bear market, offering a broader group of potential alternatives against which to weigh its turnaround. Cramer nevertheless believes the price now compensates investors for much of the uncertainty, as he said:
Now, I don’t blame anyone for getting spooked near the highs because this story got a lot more complicated. Most investors don’t want to deal with anything complicated. But down here at $86 and change, I think CVS Health, it has finally become too cheap to ignore.
More Hedge Funds Held CVS in the Second Quarter
According to Insider Monkey’s data, there were 88 hedge funds holding CVS Health Corporation in Q2, compared with 84 in Q1. Among those hedge funds, while Pzena Investment Management was the most prominent shareholder with around 11.77 million shares, GQG Partners increased its holdings by a staggering 25137% to 7.955 million shares. Short interest stood at 1.27% of the public float.
Cramer seems to be willing to buy before all those questions are settled. Aetna’s improvement and the higher earnings outlook give him reasons to stay interested, but the next test is whether CVS can preserve that progress as Caremark adjusts. At roughly 11 times projected adjusted earnings, the stock offers a less demanding entry point; keeping it attractive will require the rest of the business to keep delivering.
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