Morgan Stanley posed an uncomfortable question to healthcare investors last week: Is UnitedHealth "the CVS of 2026"? The comparison to CVS Health's dramatic 2024 collapse—when the stock lost over 40% of its value amid Medicare Advantage margin pressure—has sent ripples through the healthcare sector as investors prepare for UnitedHealth's crucial January 27 earnings report.

The CVS Parallel

Two years ago, CVS Health was riding high. The company had successfully integrated Aetna, its Medicare Advantage business was growing, and the stock traded near all-time highs. Then came the reckoning: medical costs surged above expectations, Medicare Advantage margins compressed dramatically, and the stock collapsed.

The question now is whether UnitedHealth—by far the largest health insurer in the United States—faces similar dynamics. Over the past 12 months, UnitedHealth shares have fallen 30%, a stunning decline for what has traditionally been one of the most reliable large-cap performers in healthcare.

"There is always a risk that UNH could follow in CVS's footsteps, although we think the probability of this outcome is low given the different business mix."

— Morgan Stanley research note

The Medicare Advantage Margin Squeeze

At the heart of the concern is Medicare Advantage, the privatized Medicare program that has been the profit engine for managed care companies. Several headwinds are converging:

Higher medical utilization: After years of deferred care during COVID, patients are catching up on procedures and treatments. This "utilization normalization" has pressured medical benefit ratios across the industry.

Regulatory pressure: The Centers for Medicare & Medicaid Services has increased scrutiny on Medicare Advantage plans, particularly around risk adjustment practices that insurers use to increase payments.

Star ratings compression: Quality bonus payments tied to star ratings have declined for many insurers, reducing the revenue premium they can earn.

Why UnitedHealth May Be Different

Despite the parallel, several factors distinguish UnitedHealth from CVS's 2024 predicament:

Optum's diversification: UnitedHealth's Optum division—which includes pharmacy benefits, healthcare services, and technology—provides meaningful diversification away from pure insurance margins. This business mix doesn't exist at CVS to the same degree.

Scale advantages: As the largest player in Medicare Advantage with approximately 30% market share, UnitedHealth has negotiating leverage with providers that smaller competitors lack.

Operational excellence: UnitedHealth has historically managed medical costs more effectively than peers, though this advantage has narrowed in recent quarters.

Morgan Stanley expects Medicare Advantage margins at UnitedHealth to recover to around 2%–3% in 2026, suggesting the worst may be behind the company. Their outlook for Medicare Advantage as a category has improved, citing a more favorable rate environment and potentially easing regulatory backdrop.

The January 27 Catalyst

UnitedHealth's full-year 2025 results and 2026 guidance, scheduled for release before markets open on January 27, will be the defining moment for healthcare stocks in the first quarter.

Analysts will focus on:

  • Medical loss ratio guidance: The percentage of premiums spent on medical care directly impacts profitability
  • Medicare Advantage enrollment: Growth or share loss signals competitive positioning
  • Optum Health performance: The services business has been a margin bright spot
  • 2026 EPS guidance: The Zacks Consensus Estimate expects $17.60 per share, up 8% from 2025

CVS's Redemption Story

Interestingly, CVS Health has staged a remarkable comeback. The stock has rallied 84% over the past 12 months as the company restructured underperforming operations, improved cost controls, and stabilized its Aetna insurance business.

This recovery offers a potential roadmap for UnitedHealth if margins do compress: aggressive cost management, operational restructuring, and patience for the margin cycle to turn. It also suggests that healthcare stocks can recover quickly once the fundamental picture improves.

The Sector Setup

Cantor Fitzgerald has identified both CVS Health and UnitedHealth as preferred stocks for Medicare Advantage exposure in 2026, suggesting that the worst-case scenarios may be priced into current valuations.

Bernstein's Lance Wilkes raised his fair value assessment of UnitedHealth to $444 per share—roughly 30% above current levels—while maintaining the stock as a top pick for 2026. This bullish view reflects expectations that margin pressure will prove temporary rather than structural.

What It Means for Investors

Healthcare insurers enter 2026 at an inflection point. The ACA subsidy cliff has shifted more costs onto consumers, Medicare Advantage margins are normalizing after years of exceptional profitability, and regulatory scrutiny remains elevated.

For long-term investors, the current setup offers potential opportunity. UnitedHealth trades at 17.9 times earnings with a 2.5% dividend yield—a reasonable valuation for a company that has historically compounded earnings at double-digit rates. If Morgan Stanley's margin recovery thesis proves correct, current prices could prove attractive entry points.

But the CVS parallel is a reminder that even dominant companies can stumble when fundamental assumptions prove wrong. January 27 will reveal whether UnitedHealth's 2026 follows the CVS playbook—or charts a different course entirely.