Leerink Swann Thinks CVS Health’s Stock is Going to Recover

By Austin Angelo

Leerink Swann analyst David Larsen reiterated a Buy rating on CVS Health (NYSE: CVS) yesterday. The company’s shares opened today at $74.23, close to its 52-week low of $69.30.

Larsen observed:

“We are very surprised at the negative impact these Rx are having on CVS’ book because 40M scripts are just 3% of total retail volume. If we assume an EBITDA /Rx of $8.50 this would imply $340M of lost retail EBITDA which is just ~3.5% of total retail EBITDA. CVS indicated that given the retail fixed cost structure the ‘last scripts are most profitable.’ Other headwinds include reimbursement pressure, a mix-shift in the nature of the business and delays in accretion from Target and Omnicare. Initially CVS indicated that there would be ~$0.26 of incremental accretion in in 2017 from these deals, but this has been reduced to ~$0.17.”

According to TipRanks.com, Larsen is a 1-star analyst with an average return of -3.4% and a 30.1% success rate. Larsen covers the Technology sector, focusing on stocks such as Quality Systems, Everyday Health, and Evolent Health.

Currently, the analyst consensus on CVS Health is Strong Buy and the average price target is $103.60, representing a 39.6% upside.

In a report released yesterday, Barclays also reiterated a Buy rating on the stock with a $85 price target.

Based on CVS Health’s latest earnings report for the quarter ending June 30, the company posted quarterly revenue of $43.73 billion and quarterly net profit of $920 million. In comparison, last year the company earned revenue of $38.64 billion and had a net profit of $1.24 billion.

Based on the recent corporate insider activity of 65 insiders, corporate insider sentiment is negative on the stock.

CVS Health Corp. engages in the provision of pharmacy health care provider in the U.S. It operates its business through three business segments: Pharmacy Services, Retail/LTC and Corporate. The Pharmacy Services segment provides a full range of pharmacy benefit management services to its clients consisting primarily of employers, insurance companies, unions, government employee groups, managed care organizations and other sponsors of health benefit plans and individuals throughout the U.S. This segment operates under the CVS Caremark Pharmacy Services, Caremark, CVS Caremark, CarePlus CVS/pharmacy, CarePlus, RxAmerica and Accordant names. The Retail/LTC segment includes retail drugstores, its online retail pharmacy website, CVS.com, onsite pharmacy stores and its retail health care clinics. The Corporate segment provides management and administrative services to support the overall operations of the company. The company was founded by Stanley P. Goldstein in 1963 and is headquartered in Woonsocket, RI.