Recession Risk: Could CVS Stock Drop to $50?
CVS Health stock (NYSE: CVS) has emerged as one of the top performers this year, appreciating nearly 50%, significantly outpacing the broader S&P500 index which has declined 4%. Investors appear optimistic that the company may overcome its challenges following last year’s 40% stock price decline, which was primarily driven by rising medical costs impacting profitability.
Several factors have contributed to renewed investor confidence, including the company’s strategic initiatives focused on operational efficiency and cost reduction. Additionally, recent executive changes have been received favorably by investors. The company has appointed Steve Nelson, former CEO of UnitedHealthcare division at UnitedHealth Group, as the new head of Aetna. Also, David Joyner replaced Karen Lynch as CVS’s new Chief Executive Officer in October last year. Market sentiment also suggests that the Trump administration may implement more favorable pricing structures for insurance companies covering senior citizens under private plans, potentially benefiting companies like CVS.
Despite these positive developments, one should consider potential downside scenarios. How would you react if CVS stock experienced a 40% or greater decline in the coming months? While this may seem improbable, historical precedents indicate such scenarios are possible. Currently, broader markets are experiencing a selloff amid growing recession concerns in the U.S., partly attributed to President Donald Trump’s tariffs on key trading partners.
The critical consideration is that during economic downturns, CVS stock could experience substantial valuation deterioration. Evidence from 2020 demonstrates that the stock lost over 25% of its value within a few quarters. The impact was even more profound during the 2008 recession, with CVS losing 45% of its value. With CVS stock having already appreciated approximately 50% this year to $65, investors should contemplate whether market conditions could reverse this upward momentum. If similar economic pressures manifest, this could potentially drive the stock below $40. However, for investors who seek lower volatility than individual stocks, the Trefis High-Quality portfolio presents an alternative — having outperformed the S&P 500 and generated returns exceeding 91% since its inception.
Why Is It Relevant Now?
While CVS demonstrates promising potential through its profitability improvement initiatives, investors should carefully consider broader economic risks in their evaluation. As a major health insurance provider, CVS Health faces vulnerability to increasing costs of medicine and medical supplies, which directly impact healthcare expenses and consequently place pressure on the company’s insurance operations.
Although inflation concerns have moderated, they remain a significant consideration. President Trump’s assertive policies regarding tariffs and immigration have renewed apprehensions about potential inflationary pressures. This uncertainty, coupled with the U.S. economy’s susceptibility to contraction, heightens recession possibilities.
The global geopolitical environment has become increasingly unstable, characterized by the persistent Ukraine-Russia conflict, heightening trade tensions, and deteriorating relationships with traditional allies including Canada, Mexico, and European nations. These external factors introduce substantial additional risks to the market landscape. See our analysis here on the macro picture. Given these complex dynamics, investors would be prudent to maintain vigilant monitoring of macroeconomic indicators when evaluating positions in CVS or similar healthcare sector investments.
How Resilient Is CVS Stock During A Downturn?
CVS stock has fared slightly better than the benchmark S&P 500 index during some of the recent downturns. Worried about the impact of a market crash on CVS stock? Our dashboard How Low Can Stocks Go During A Market Crash captures how key stocks fared during and after the last six market crashes.
Inflation Shock (2022)
• CVS stock fell 20.7% from a high of $110.83 on 8 February 2022 to $87.84 on 12 October 2022, vs. a peak-to-trough decline of 25.4% for the S&P 500
• The stock is yet to recover to its pre-Crisis high
• The highest the stock has reached since then is $103.79 on 12 December 2022 and currently trades at around $66
COVID-19 Pandemic (2020)
• CVS stock fell 27.3% from a high of $71.94 on 20 February 2020 to $52.30 on 16 March 2020, vs. a peak-to-trough decline of 33.9% for the S&P 500
• The stock fully recovered to its pre-Crisis peak by 16 November 2020
Global Financial Crisis (2008)
• CVS stock fell 45.6% from a high of $44.12 on 5 June 2008 to $23.98 on 9 March 2009, vs. a peak-to-trough decline of 56.8% for the S&P 500
• The stock fully recovered to its pre-Crisis peak by 16 February 2012
Protecting Wealth
CVS Health’s Revenues have seen robust growth, achieving an average annual increase of 8.5% over the past three years, outpacing the S&P 500’s 6.3% growth during the same period. But, this seems to be reflected in the company’s valuation. CVS stock currently trades at approximately 12x trailing earnings, which represents a slight premium compared to its five-year average P/E ratio of 10x.
Notably, the company’s medical cost ratio has increased dramatically from 83.8% in 2022 to 92.5% in 2024, representing a substantial deterioration in this key profitability metric. Based on current industry trends and company-specific factors, a near-term return to the more favorable 2022 levels appears unlikely.
Given the chances of a slowdown in growth and broader economic uncertainties, ask yourself this question: Do you intend to hold your CVS stock now, or will you panic and sell if it begins to drop to $50, or even lower levels? Holding on to a declining stock is never easy. Trefis collaborates with Empirical Asset Management—a Boston area wealth manager—whose asset allocation strategies yielded positive returns during the 2008-09 period when the S&P lost more than 40%. Empirical has integrated the Trefis HQ Portfolio in this asset allocation framework to provide clients with better returns and reduced risk compared to the benchmark index; offering a less volatile experience, as reflected in the HQ Portfolio performance metrics.
| Returns | Mar 2025 MTD [1] |
2025 YTD [1] |
2017-25 Total [2] |
| CVS Return | 0% | 48% | 7% |
| S&P 500 Return | -5% | -4% | 152% |
| Trefis Reinforced Value Portfolio | -6% | -8% | 508% |
[1] Returns as of 3/16/2025
[2] Cumulative total returns since the end of 2016
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