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After a dismal 2024, CVS Health could be starting to turn itself around.

Some investors seem convinced, especially after the retail drugstore chain on Wednesday posted a big beat on fourth-quarter earnings and a 2025 profit outlook that was in line with expectations.

Shares of CVS are now up more than 45% for the year, unlike the company’s main retail pharmacy rival Walgreens, whose stock is up nearly 3%. Shares of other insurers UnitedHealth Group and Cigna are up about 4% and nearly 8%, respectively.

The upbeat quarterly results may be a sign that brighter days are ahead for the CVS – or at least that things may not be as bad as they were last year.

The company’s stock plummeted more than 40% in 2024 after it missed earnings estimates for three straight quarters and withdrew its annual forecast, largely due to higher-than-expected medical costs in its insurance unit, along with other issues like pharmacy reimbursement pressure.

CVS isn’t out of the woods yet. Medical costs were less severe during the fourth quarter but will likely remain elevated in 2025, as more seniors flock to hospitals and doctor’s offices and use more health-care benefits.

But some analysts are more optimistic about the company’s ability to navigate those challenges moving forward and reach its full-year 2025 adjusted earnings outlook of $5.75 to $6 per share. CVS has pursued store closures and other cost cuts, and its new CEO David Joyner has spent much of his first 100 days at the helm focusing on the company’s insurance unit Aetna.

“The pieces are in place for [CVS to return] from what has been a bottoming of operations performance,” said Leerink Partners analyst Michael Cherny, who upgraded the stock on Wednesday after the results.

Cantor Fitzgerald analysts on Wednesday also upgraded CVS’ stock, citing “increased confidence in a successful turnaround.”

CVS has already taken steps to rightsize its insurance business, which includes plans for the Affordable Care Act, Medicare Advantage and Medicaid, as well as dental and vision. The company exited certain unprofitable health plans in 2024, and hiked premiums to enroll fewer members this year.

In a research note, Cantor Fitzgerald analysts said they are “incrementally more confident” that CVS will improve margins in its Medicare Advantage business and return to “normal levels” by 2027.

CVS has said it wants to get the Medicare Advantage business back to a 3% to 5% margin. They were in the negative 4.5% to 5% range at the end of 2024, CVS CFO Tom Cowhey said during an earnings call on Wednesday.

CVS and other insurers such as UnitedHealth Group and Humana have seen medical costs spike over the last year as more Medicare Advantage patients return to hospitals for procedures they delayed during the pandemic.

Medicare Advantage, a privately run health insurance plan contracted by Medicare, has long been a driver of growth and profits for insurers. But investors have become concerned about the runaway costs tied to those plans, which cover more than half of all Medicare beneficiaries.

To improve margins, the company plans to shrink Medicare Advantage membership by a “high single-digit percentage” from the end of 2024, executives said on Wednesday. Aetna had 4.4 million Medicare Advantage members as of December, up from 3.5 million the year before, according to the company’s fourth-quarter release.

Overall, CVS executives said they expect to decrease insurance members by more than 1 million this year, including 800,000 in the individual market. Patients who lose insurance can enroll in a new Medicare Advantage plan or join traditional Medicare plans.

Aetna also scored better Medicare Advantage star ratings for the 2025 payment year, which should boost its federal payments in 2026. Those crucial ratings help patients compare the quality of Medicare health and drug plans and determine how much an insurer receives in bonus payments from the Centers for Medicare & Medicaid Services.

On the earnings call, Joyner said the company is pushing for higher payment rates from the government for Medicare Advantage. He said the proposed rates for 2026 don’t account for higher medical costs over the last year.

The Biden administration in January proposed to increase Medicare Advantage reimbursement rates by 2.2% in 2026, up from the 0.2% drop in rates for this year. But Cantor analysts also said they expect the Medicare Advantage reimbursement rate could rise, projecting a finalized increase of 2% to 2.8%.

“We’re assuming an improving rate environment … maintaining STARS ratings, and [medical] costs trends that do not exceed 2024 levels,” the analysts wrote.

It is difficult to predict what…