On Thursday, CVS Health (NYSE:CVS) saw its price target adjusted by Baird, with the firm lowering the target to $51 from the previous $61, while maintaining a Neutral rating on the stock. The revision reflects a 16% decrease in the price target alongside a projected 13% upside from the current level. The adjustment comes as CVS trades near its 52-week low of $43.93, having declined over 40% year-to-date. InvestingPro data reveals 14 key insights about CVS's current market position, including several indicators suggesting the stock may be oversold.
The analyst from Baird justified the new price target by applying a 9.0x price-to-earnings (P/E) multiple to the estimated 2025 earnings per share (EPS) of $5.68. This multiple aligns with CVS's five-year median P/E, considered to be a balanced representation of the various challenges and advantages facing the company at present. Currently trading at a P/E ratio of 11.53x and offering a substantial 5.87% dividend yield, CVS has maintained dividend payments for 54 consecutive years. According to InvestingPro's Fair Value analysis, the stock appears to be trading near its intrinsic value.
According to the analyst, the adjusted valuation mirrors the ongoing pressures and prospects influencing CVS Health. The company's performance, particularly in its Health Care Benefits (HCB) segment, is a key factor in this assessment. The analyst suggested that a turnaround in earnings and an improvement in the HCB segment could potentially lead to a period of accelerated EPS growth and an expansion of the P/E multiple.
The statement from Baird emphasized the potential for CVS Health's stock value to increase if the company demonstrates a solid recovery in earnings and advancements in its HCB operations. This scenario could offer a significant opportunity for growth in the stock's earnings multiple and its overall performance.
The revised price target and rating come as investors and stakeholders in CVS Health continue to monitor the company’s financial health and market position, with the Baird analyst providing a near-term outlook based on current business conditions and historical financial metrics.
In other recent news, CVS Health faces a lawsuit from the U.S. Department of Justice over allegations of filling illegal opioid prescriptions.
The company has contested these charges, stating its disagreement with the allegations. In other developments, CVS Health has set prices for its $1.7 billion tender offer to repurchase outstanding senior notes. This move forms part of the company's ongoing debt management strategy.
CVS Health, UnitedHealth Group (NYSE:UNH), and Cigna Corp (NYSE:CI). saw their stocks rise as investors reassessed the impact of new healthcare provisions targeting pharmacy benefit managers (PBMs). This came after a selloff triggered by concerns over potential legislative changes. Mizuho (NYSE:MFG) analyst Ann Hynes highlighted that the new provisions are less stringent than initially feared.
On the other hand, these companies experienced a dip in their stocks following President-elect Donald Trump's commitment to PBM reform. Trump referred to PBMs as the "middle man" and expressed his intention to eliminate their role to reduce drug costs. CVS Health responded by emphasizing its role in making prescription drugs more affordable.
Furthermore, CVS Health, along with Cigna and UnitedHealth Group, may face legislative changes that could impact their PBM operations. Senators Elizabeth Warren and Josh Hawley have proposed a bill that would require these companies to divest their pharmacy operations within three years. Analysts from TD Cowen and Piper Sandler have maintained their ratings for CVS Health amidst these developments.
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