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Raymond James: CVS A Strong Buy Despite Pricing Headwinds

Dave Royse

CVS Health Corp (NYSE: CVS) stock was down Tuesday following news of a pricing disagreement with Walmart Inc (NYSE: WMT), which will leave its pharmacy benefits network — but the broader pricing headwinds the company faces shouldn’t deter investors, Raymond James said.

The Analyst

Analyst John Ransom reiterated a Strong Buy rating on CVS with a $90 price target. 

The Thesis

CVS management recently gave a presentation in which it said it was seeing continued reimbursement pressure in its retail pharmacy business while getting less relief from falling generic drug costs, Ransom said in a Monday note. 

On the pharmacy benefits management side, higher guaranteed rebates and lower-than-expected brand inflation were also seen as headwinds by the company.

Raymond James is making more conservative assumptions and lowered its 2019 earnings per share estimate by 30 cents to $7.40.

Investors have already accounted for lower earnings per share, and with the stock’s 20-percent drop from recent highs, it remains a strong buying opportunity, the analyst said. 

A Break With Walmart

The Raymond James note was issued before CVS announced later Tuesday that Walmart would no longer participate in the network of providers where customers of some of CVS’s Caremark pharmacy benefit programs can have their prescriptions filled. CVS said in a press release that it was balking at Walmart's request for higher reimbursements.

"While we have enjoyed a long relationship with Walmart as a low-cost provider in our broad national networks, based on our commitment to helping our clients and consumers manage rising pharmacy costs, we simply could not agree to their recent demands for an increase in reimbursement,” Derica Rice, president of CVS Caremark — CVS Health's pharmacy benefit management business — said in the statement.

The move won't have a huge impact, as fewer than 5 percent of the CVS Caremark members in affected programs fill their prescriptions at Walmart, CVS said. 

Price Action

CVS shares were down 2.45 percent at $63.74 at the close Tuesday.

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Photo via Wikimedia. 

Latest Ratings for CVS

Date Firm Action From To
Dec 2018 Barclays Initiates Coverage On Overweight
Nov 2018 Goldman Sachs Reinstates Neutral
Nov 2018 Cantor Fitzgerald Initiates Coverage On Overweight

View More Analyst Ratings for CVS
View the Latest Analyst Ratings

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