Mizuho Securities has adjusted its price target for CVS Health (NYSE: NYSE:CVS), reducing it to $66 from the previous $73, while retaining an Outperform rating on the stock.
The revision follows the company's announcement last week regarding its third-quarter earnings for 2024 and the suspension of its financial guidance.
The analyst at Mizuho cited the need to adjust the price target based on the recent preannouncement of the company's third-quarter earnings and the halting of future earnings guidance.
This led to a revision of the earnings per share (EPS) estimates for CVS Health, now expecting 2024 EPS to be $5.24, down from the prior estimate of $6.45. Additionally, the forecast for 2025 EPS has been revised to $6.20, a decrease from the earlier projection of $7.10.
The report from Mizuho acknowledged the potential for medical loss ratio (MLR) trends to show improvement in 2025 due to STAR payments. However, the expectation is that MLR will remain higher than the 2023 baseline figures. This anticipation of elevated MLR levels has influenced the revised earnings estimates and price target.
In other recent news, CVS Health has seen significant leadership changes with David Joyner appointed as the new CEO, succeeding Karen Lynch. This change comes amid CVS's withdrawal of its 2024 profit forecast and a downward revision of its third-quarter profit expectations. Analysts, including Piper Sandler, maintain a positive outlook on the company, reaffirming an Overweight rating on CVS Health.
CVS Health is also undertaking strategic changes including the introduction of SimplePay Health, a new health plan for self-insured customers, and the decision to exit the core infusion services sector. The company has faced challenges with high medical costs, particularly within its Aetna health insurance business, which new CEO Joyner is expected to address.
Furthermore, CVS Health has announced restructuring charges of around $1.2 billion due to planned store closures and cost reduction actions. The company's Medical Benefit Ratio for the quarter is expected to be around 95.2%.
InvestingPro Insights
In light of Mizuho's revised outlook for CVS Health, it's worth considering some additional financial metrics and insights from InvestingPro. Despite the lowered price target, CVS's current valuation metrics suggest the stock might be undervalued. The company's P/E ratio stands at 10.07, with an adjusted P/E ratio of 9.48 for the last twelve months as of Q2 2024, indicating a potentially attractive entry point for value investors.
InvestingPro Tips highlight that CVS has maintained dividend payments for 54 consecutive years and has raised its dividend for 3 consecutive years. This consistent dividend history, coupled with a current dividend yield of 4.68%, may appeal to income-focused investors, especially given the recent stock price decline.
However, it's important to note that CVS's stock has taken a significant hit recently, with a 1-week price total return of -9.83% and a year-to-date return of -25.08%. This aligns with Mizuho's cautious stance and revised earnings estimates.
For investors seeking a more comprehensive analysis, InvestingPro offers 12 additional tips for CVS Health, providing a deeper understanding of the company's financial health and market position.
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