UBS upgrades CVS to buy rating, sees further recovery ahead

CNBC

4 hours ago

UBS sees a rosy outlook ahead for CVS . The bank upgraded the pharmacy stock to a buy rating from neutral, with analyst Kevin Caliendo lifting his price target by 18%, to $79 from $67. Shares of CVS Health have already surged 53% this year, through Friday's close. Caliendo's updated target implies an additional 15% upside ahead for the stock. CVS YTD mountain CVS YTD chart "Despite the YTD improvement in shares, we continue to see incremental upside, both from a long-term EPS perspective, with multiple years of [double-digit] earnings growth ahead given multiple pathways (but primarily hinging on the [healthcare benefits] recovery), and from a valuation multiple perspective," the analyst wrote. "While it remains early in the tenure of the new management team, stability in messaging and continued momentum in HCB earnings improvement (especially in light of peers' challenges) provides us with enough conviction today to make a call on the stock." Caliendo noted that his upgrade follows two strong consecutive quarters for CVS that indicate fixes to its healthcare benefits segment are on track. "Critically, the benefit cuts and assumptions CVS made around Medicare Advantage (MA) utilization this current plan year have proved to be on-point (meaningful prior year development provides comfort), giving us more conviction in the company's ability to forecast and manage trend," he added. "This is especially relevant as the company manages to [reprice] a disproportionate share of multi-year contracts in its group MA business (~50%) this year, which we believe are performing at a negative [mid-single digit] to [high-single digit] margin today." Caliendo sees CVS earning $7.20 per share by the end of fiscal year 2026, up from a prior estimate of $6.92 and a Wall Street consensus of $7.15. The healthcare benefit and pharmacy chain is likely to see 14% compound annual growth in its earnings per share through 2028 — whereas the Street only sees 12% — yet sells at a multiple of 9 times estimated 2026 results, versus a 10-year average of 10 times, the UBS analysts said.