CVS

CVS is a low-margin healthcare conglomerate (Aetna insurance, Caremark PBM, ~9,000 retail pharmacies) where the top line keeps compounding but profit has caved in. FY2025 revenue hit $402B (+7.8%), yet net income fell to $1.77B (-61.7%), diluted EPS to $1.39 (-62%), operating margin to 1.2% and net margin to a razor-thin 0.4%, dragging ROE down to 2.4%. This isn't a one-year wobble: net income has slid from a $8.34B peak in FY2023 to $1.77B in two years, driven by medical-cost pressure in the Health Care Benefits (Aetna) segment. The MD&A confirms management is cutting losses rather than denying them — it 'exited the states in which Aetna operated on the Public Exchanges effective January 2026,' an admission that those insurance lines were underwriting unprofitably.

The reason this is a hold and not a sell is cash. The headline 70.7x P/E is computed on trough GAAP earnings and is close to meaningless; the better lenses are 0.3x sales and the cash statement. Operating cash flow actually grew 16.8% to $10.6B, and after $2.83B of capex that leaves roughly $7.8B of free cash flow — a ~6% FCF yield on the $125B market cap. That comfortably funds the $3.40B dividend (covered ~2.3x, ~2.7% yield), so shareholders are paid to wait. With ~87M Caremark plan members and ~37M Aetna members, the integrated franchise and its cash generation remain intact even as accounting profit collapses.