On Friday, Piper Sandler adjusted its price target for CVS Health Corporation (NYSE:NYSE:CVS), increasing it modestly to $94 from the previous $93 while retaining an Overweight rating on the stock.
The revision follows a recent investor event where CVS's CFO, Tom Cowhey, confirmed the company's full-year 2024 guidance and discussed various operational topics including the fourth quarter of 2023 claims development, first quarter of 2024 utilization trends, the impact of the Change Healthcare (NASDAQ:CHNG) outage, Medicare Advantage enrollment growth and mix, as well as CVS's Healthcare Delivery assets.
Piper Sandler's analysis suggests that the consensus Medical Loss Ratio (MLR) estimate of 87.0% for the first quarter of 2024 could be at risk. This potential vulnerability is attributed to several factors: the possible lack of a favorable prior year development (PYD), year-to-date utilization, and possibly more conservative reserving required due to the ongoing Change Healthcare outage. Despite these concerns, the firm remains optimistic about CVS's ability to meet its full-year 2024 MLR guidance.
The analyst's confidence is supported by the assumption that the MLR assumptions for Oak Street Health, which CVS acquired, were set independently and are adequate.
Additionally, the strength in Healthcare Services (NASDAQ:HCSG) and Pharmacy Services Segment (PCW) is expected to help offset any higher-than-anticipated Health Care Benefits (HCB) MLR. Based on these factors, Piper Sandler anticipates that CVS will achieve its consolidated full-year 2024 Adjusted Operating Income (AOI) and adjusted Earnings Per Share (EPS) targets.
The new price target of $94 reflects a constant valuation multiple of 10 times the slightly increased estimated EPS for the calendar year 2025. Piper Sandler's Overweight rating indicates a positive outlook on CVS Health's stock performance in the market.
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