In a note this month, Gimme Credit, a corporate bond research firm, downgraded the credit rating of CVS Health (NYSE:CVS), citing concerns over its Aetna Medicare Advantage business and a weaker cash flow. The rating was lowered to Deteriorating from Stable, indicating a negative outlook for the company's credit profile in the near term.
CVS Health, known for its expansive drugstore chain, has diversified into three healthcare-related businesses, which now include its pharmacy benefit manager (PBM) and Aetna. The company's recent acquisitions of primary care providers were part of its strategy for integrated healthcare services. However, Gimme Credit says this move, particularly the ownership of Aetna and its Medicare Advantage plan, has introduced a level of unpredictability that has negatively impacted the company's financial visibility.
The firm's analysis highlighted that the venture into one-stop healthcare shopping remains unproven and has brought about financial instability. CVS Health's cash flow has become less predictable, and its financial flexibility has diminished. Despite maintaining conservative financial policies, the company is facing worsening margins that are largely beyond its management's control.
The downgrade by Gimme Credit reflects the challenges CVS Health is encountering with its Aetna Medicare Advantage business. The unpredictability of this segment, combined with a less stable cash flow, suggests that CVS may face difficulties in maintaining its credit profile in the immediate future.