Mizuho has reaffirmed its positive stance on CVS Health (NYSE: NYSE:CVS), maintaining both the Outperform rating and the $66.00 price target for the company's shares.
The firm's commentary focused on recent speculations that CVS Health is considering a potential split of its retail pharmacy and insurance units. Mizuho expressed skepticism about the likelihood of such a separation occurring.
The firm elaborated that, in the event of a split, the pharmacy benefit manager (PBM) would likely remain with CVS's retail division, while Oak Street Health could be spun off with Aetna. Mizuho argued that the PBM is too integrated with CVS's retail operations, providing significant revenue synergies that would be challenging to untangle. The analyst highlighted the PBM's contribution to the retail segment's market share growth over the past two decades.
Additionally, the firm pointed out that the health insurance segment's competitiveness in Medicare Advantage Prescription Drug (MAPD) plans would be compromised without the PBM, further complicating any potential separation.
CVS Health laid off approximately 2,900 employees and the introduction of new Medicare Advantage plans with a $0 monthly premium on prescription drugs.
The company is also said to be considering a strategic split of its retail and insurance operations. This decision follows private discussions with Glenview Capital Management, a stakeholder in CVS Health, about the need to improve the company's operational performance. Evercore ISI and Leerink Partners have offered their analysis on the potential breakup, highlighting both the opportunities and challenges that could arise from such a move.
InvestingPro Insights
Adding to Mizuho's analysis of CVS Health's potential split and its $66.00 price target, InvestingPro data provides additional context for investors. CVS's current market cap stands at $77.42 billion, with a P/E ratio of 10.87, suggesting the stock may be undervalued relative to its earnings. This aligns with an InvestingPro Tip indicating that CVS is "Trading at a low revenue valuation multiple."
The company's revenue growth of 7.03% over the last twelve months demonstrates its continued expansion in the healthcare sector. CVS also boasts a healthy dividend yield of 4.32%, which is particularly noteworthy given another InvestingPro Tip: "Has maintained dividend payments for 54 consecutive years." This long-term commitment to shareholder returns could be a factor in Mizuho's Outperform rating.
Interestingly, while Mizuho's price target is $66.00, the InvestingPro Fair Value estimate stands higher at $75.37, suggesting potential upside that investors might consider. For those seeking a deeper understanding of CVS's financial health and market position, InvestingPro offers 8 additional tips, which could provide valuable insights into the company's prospects amidst discussions of potential structural changes.
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