On Monday, UBS has revised its price target for CVS Health (NYSE:CVS), reducing it to $85.00 from the previous $90.00, while still recommending the stock as a Buy. The adjustment comes in light of revised earnings per share (EPS) estimates for the company for the fiscal year 2024, now set at $8.00, down from the earlier projection of $8.24. This decrease is attributed to an anticipated rise in the Medical Loss Ratio (MLR) for the year by 40 basis points.
The analysis further notes that the fiscal years 2025 and 2026 also see reduced earnings estimates. The factors contributing to this include a lower Health Care Benefits (HCB) forecast, with an expected 60 basis point improvement in MLR linked to Stars recovery now being projected for 2025.
Additionally, there is a slight decline in Health Services Segment (HSS) earnings due to lower projected EBIT for Optum Specialty Health (OSH), and a weaker performance anticipated in the pharmacy segment. The latter is expected to experience negative low single to mid single digit EBIT growth, a change from the previously flat growth projection. The analyst suggests that it might take some time for the Cost Vantage initiative to lead to operational stabilization within the pharmacy segment.
As a result of these factors, the EPS estimates for 2025 and 2026 have been adjusted to $8.75 and $9.84, down from the former estimates of $9.20 and $10.46, respectively. Despite the lowered price target and EPS estimates, the firm maintains a positive outlook on CVS Health with a Buy rating, indicating a belief in the stock's potential value.
InvestingPro Insights
CVS Health (NYSE:CVS) presents a compelling case for investors, with its management's aggressive share buyback strategy and a Relative Strength Index (RSI) suggesting the stock is currently in oversold territory. The company's valuation is also noteworthy, with a low P/E ratio of 10.36, which is relatively attractive given its near-term earnings growth prospects. Additionally, the company's strong free cash flow yield is underscored by a P/E ratio adjusted for the last twelve months as of Q4 2023, standing at 9.04.
InvestingPro Tips highlight CVS Health's position as a prominent player in the Healthcare Providers & Services industry, with a history of maintaining dividend payments for 54 consecutive years. This stability is further affirmed by the company's profitability over the last twelve months. For those seeking in-depth analysis, there are over 5 additional InvestingPro Tips available, which can be accessed through InvestingPro's platform for CVS Health at https://www.investing.com/pro/CVS. Use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
The real-time data from InvestingPro shows a robust revenue growth of 10.88% for the last twelve months as of Q4 2023, with a gross profit margin of 14.94%. Despite the revised EPS estimates by UBS, CVS's dividend yield stands at 3.96%, with a dividend growth of 9.92% in the same period, reflecting a commitment to shareholder returns. The company's fair value, as per analyst targets, is estimated at $87.3, while InvestingPro's fair value assessment is slightly higher at $92.5.
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