Wolfe Research sees attractive CVS Health risk/reward on horizon

Wolfe Research analysts upgraded CVS Health (NYSE:) to Outperform from Peer Perform with a new $80 price target in a note Tuesday.

Wolfe analysts told investors in a note that the potential for a more realistic long-term guide is setting up an attractive risk/reward for the stock. They also have confidence in the company’s 2025 star recovery.

“We see potential for CVS to take steps to more reasonably/conservatively set expectations for LT earnings growth in 2025 and beyond in the high single-digit range,” the analysts wrote.

“Importantly, this would include a much more realistic low-to-mid-single-digit decline in the company’s Retail segment and reinvestment of SG&A into growth projects vs. taking to the bottom line – effectively allowing co. to hit #s in the intermediate term and reinvest for future grow,” they added.

Wolfe Research has “confidence in CVS attaining 4-Star ratings in its key PPO plan w/ approximately 2m members.” As a result, they see the risk/reward profile in the intermediate term turning positive.

“Recall that CVS would get a ~$900M (~$0.50) benefit to 2025 should it get back to 4.0 Stars in this key contract and potentially pick up another $600M in 2025 from repricing its Med Adv business post recent cost trend acceleration,” the analysts added.

“We do not expect this to translate fully into 2025 EPS upside,” they cautioned. “However, we do believe when combined with more realistic targets at December Investor Day for 2025 and beyond this sets up potential for investors to have confidence in CVS delivering in-line to better EPS vs. expectations starting in the 2025 – for the first time in recent memory. In turn, that should drive multiple appreciation from current levels.”