CVS Health (CVS) - Get Report shares traded higher Thursday after analysts at Deutsche Bank called the company its "top pick" in the managed care, drug supply and beneficiary technology space, citing the potential for better-than-expected results from its pharmacy services business.
Deutsche Bank initiated coverage with a "buy" rating and a $91 price target, the bank said, but noted upside potential in the $114 range even amid concerns for changes to broader U.S. healthcare regulation, prescription drug pricing reform and pressure on reimbursements from its retail pharmacy business.
"We see the company as well positioned to deliver on a vertical integration care delivery strategy, allowing the company to take share and generate positive earnings surprise," Deutsche Bank said. "We also see the valuation of CVS shares as highly compelling and capturing potential execution and integration risks."
CVS shares were up 0.61% to $64.38 in trading Thursday.
Deutsche Bank also downplayed the impact of Amazon Inc.s (AMZN) - Get Report move into the healthcare business, but cautioned that stocks in the sector may still lag the broader market as lawmakers at the state and federal level continue to challenge the Affordable Care Act.
"While investors spent the last few years worried about the disruptive risks presented by Amazon and other tech companies, the focus has now shifted to Washington DC amid fears of dramatic healthcare reform," the bank said. "However, we believe the potential for substantive reform is remote - Republicans seem most likely to maintain control of the Senate, frustrating any initiatives by Democrats."
Last month, CVS posted stronger-than-expected second quarter earnings Wednesday, and boosted its full-year profit guidance as it continues to integrate last year's $69 billion purchase of health insurer Aetna.
CVS said adjusted earnings for the June quarter rose 12% to $1.89 per share as group reveues surged 35.2% from last year to $63.4 billion ,topping analysts' forecasts of a $62.66 billion tally, as Aetna sales added to the company' topline growth.
Looking into 2019, CVS narrowed and raised its full-year earnings forecast to a range of $6.89 to $7.00 per share, up from a prior estimate of $6.75 to $6.90.