Credit Suisse Lifts CVS Rating to Outperform on Valuation, Dividend

CVS shares firmed in a down market after the bank's analysts cited positive factors, leaving their share-price target at $75.
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CVS Health  (CVS) - Get Report shares firmed in a down market Thursday after Credit Suisse analysts raised their rating on the pharmacy chain/health insurer to outperform from neutral.

In a report, the analysts, led by A.J. Rice, cited the company’s “low valuation, solid dividend, and defensive business characteristics.”

Their share-target price remains at $75.

CVS shares recently traded at $61.35, up 0.33%. They have slid 15% in the last three months, compared to a 17% drop for the S&P 500 index. 

The deferral of medical procedures during the coronavirus pandemic should benefit CVS’ healthcare benefits operation, the analysts said. CVS owns the insurer Aetna.

“MCOs [managed care organizations] such as Aetna are benefiting from a sharp drop in healthcare utilization,” the analysts wrote.

In addition, sales at the front end of CVS stores are likely to stabilize late this quarter, the analysts said.

Meanwhile, “CVS’ pharmacy services segment is outperforming expectations, as the PBM [pharmacy benefit manager] selling season is shaping up nicely,” the analysts said.

“CVS is seeing an easing of rebate guarantee pressures which it saw peak in 2019. That should become less of a headwind in 2020, and is expected to be de minimis in 2021.”

Then there’s the “compelling” valuation the analysts said. “We believe Aetna’s increasing exposure to the fast-growing MA [Medicare Advantage] business and greater than market growth in MA provides support to its valuation.”

In addition, “CVS has remained on track to ahead of its synergies, modernization, and transformation initiatives, which could provide future upside,” the analysts wrote.

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