On Thursday, Edward Jones, a financial services firm, upgraded CVS Health (NYSE:CVS) stock from Hold to Buy. The upgrade comes as the stock, which InvestingPro analysis shows is currently undervalued, has posted a strong 28.37% year-to-date return. Ashtyn Evans, an analyst at Edward Jones, cited the potential for a successful turnaround driven by new management initiatives, particularly within its health insurance division, Aetna.
Evans highlighted the company's strategy to strengthen Aetna by redesigning plans and reducing costs. While acknowledging the above-average risks associated with the turnaround, including heightened competition and the possibility of increased government regulation in the pharmacy benefit manager (PBM) sector, Evans expressed confidence in CVS's ability to maintain its market position. This confidence appears well-founded, given the company's substantial $71.6 billion market capitalization and robust financial health score of "GOOD" according to InvestingPro metrics.
The drugstore industry faces ongoing reimbursement challenges, but CVS is actively working with PBMs to develop a new reimbursement model. The analyst pointed out that CVS's unique combination of a health insurer, PBM, and drugstore positions it to become a comprehensive provider of health care services. This synergy could lead to future earnings growth.
Evans also noted that while the transformation of CVS might require time to fully materialize, the long-term potential of the company's business model remains promising. Trading at a P/E ratio of 14.46 and offering a dividend yield of 4.67%, with a 55-year track record of consistent dividend payments, the company presents compelling value metrics. The upgrade reflects a positive outlook on CVS's ability to navigate industry challenges and capitalize on its integrated health care services. For deeper insights into CVS's valuation and growth potential, InvestingPro subscribers can access additional analysis and metrics in the comprehensive Pro Research Report.
In other recent news, CVS Health has been the subject of multiple analyst adjustments. Leerink Partners raised the company's stock price target to $55, maintaining a Market Perform rating. This change reflects the firm's expectation of an earnings recovery despite ongoing challenges within the Health Care Benefits sector. Evercore ISI also lifted its price target for CVS Health to $65, keeping an Outperform rating. The firm anticipates future performance dynamics, particularly relating to the 2026 Medicare Advantage Rate Notice.
In addition, Piper Sandler affirmed an Overweight rating for CVS Health, highlighting potential for Medicare Advantage margin expansion in 2025 and predicting a significant improvement in the medical loss ratio year-over-year. CVS Health's Health Care Benefits segment is expected to stabilize or slightly improve in 2025, with an approximate operating income of $300 million.
The Federal Trade Commission (FTC) released a report indicating that major pharmacy benefit managers (PBMs), including CVS Health's Caremark Rx, have significantly marked up prices on specialty generic drugs, resulting in over $7.3 billion in revenue from 2017 to 2022. Furthermore, CVS Health, along with Humana (NYSE:HUM) and UnitedHealth Group (NYSE:UNH), could benefit from a government proposal that could lead to increased payments for Medicare Advantage plans in 2026, potentially resulting in an additional $21 billion in payments in 2026 compared to expected payments in 2025. These are recent developments in the healthcare sector.
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