On Monday, Leerink Partners maintained a Market Perform rating on CVS Health (NYSE:CVS) shares while increasing the price target from $51.00 to $55.00. The adjustment reflects the firm's expectation of an earnings recovery despite ongoing challenges within the Health Care Benefits (HCB) sector. The company, currently trading at $54.55, has shown strong momentum with a 23% year-to-date return and appears undervalued according to InvestingPro analysis.
Leerink Partners' analyst cited a consistent setup for CVS Health going into the fourth quarter of 2024, similar to previous quarters. With an overall "GOOD" Financial Health Score from InvestingPro, the company maintains solid fundamentals despite near-term uncertainties, particularly within the HCB segment, marked by guidance reductions in the first half of 2024 and a subsequent retraction ahead of third-quarter earnings. Specific concerns for CVS Health include the results from the Annual Enrollment Period (AEP) and membership churn, along with broader market concerns such as utilization, the implementation of the Inflation Reduction Act (IRA), and Medicaid rates.
Despite these challenges, Leerink Partners believes that the strategic initiatives CVS Health is undertaking could contribute to a multi-year margin recovery. These initiatives include improvements in quality ratings (Stars), bid strategy adjustments, and market exits. However, the timing and extent of the impact on the bottom line for fiscal year 2025 remain uncertain.
In terms of the Health Services (HSS) and Pharmacy & Consumer Wellness (PCW) segments, momentum appears to be consistent with previous quarters. The HSS is experiencing accelerated specialty growth and Cordavis adoption, while the PCW is seeing growth in backend prescription volumes versus frontend weakness. Leerink Partners also mentioned the removal of a non-fundamental overhang on the pharmacy side with the rollout of CostVantage and the addition of a regulatory overhang for Caremark's Pharmacy Benefit Management (PBM), which is not expected to result in significant near-term changes.
The new price target of $55 is based on a lower projected EPS for calendar year 2025 due to cost trends but a higher next twelve months (NTM) P/E multiple, approximately 9.5x compared to the previous 8.5x. This adjustment reflects closer proximity to an anticipated improvement in HCB earnings power. With a current P/E ratio of 13.8x and a strong dividend yield of 4.88%, supported by 55 consecutive years of dividend payments, CVS presents an interesting value proposition. Leerink Partners reiterated their Market Perform rating while acknowledging the potential for growth re-acceleration, yet refrained from declaring a definitive inflection point at this time. For deeper insights into CVS Health's valuation and financial metrics, investors can access the comprehensive Pro Research Report available on InvestingPro.
In other recent news, CVS Health has seen multiple developments. Evercore ISI has raised its stock target for CVS Health to $65 while maintaining an Outperform rating, anticipating future performance dynamics, especially relating to the 2026 Medicare Advantage Rate Notice. Analyst Elizabeth Anderson of Evercore ISI notes the current year's outlook for CVS Health remains stable and predicts 2026 will mark a significant turning point in the company's performance.
CVS Health's Health Care Benefits (HCB) segment is expected to stabilize or slightly improve in 2025, with an approximate operating income of $300 million. Furthermore, Piper Sandler has 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 (MLR) year-over-year.
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. Additionally, 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 the recent developments in the healthcare sector.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.