On Wednesday, Piper Sandler affirmed a positive stance on CVS Health (NYSE:CVS) shares, reiterating an Overweight rating and a price target of $64.00. Currently trading at $51.57, InvestingPro analysis indicates CVS is undervalued, with the stock showing a significant 12.08% return over the last week.
As a prominent player in the Healthcare Providers & Services industry, CVS maintains a robust P/E ratio of 13.09x. The firm’s analysis delved into various ongoing activities and expected developments involving the Centers for Medicare & Medicaid Services (CMS), the Federal Trade Commission (FTC), the Department of Justice (DOJ), Congress, and several Texas District Courts.
The analysts predict the Calendar Year 2026 (CY26) Advance Notice from CMS marks the start of a new operational era for Medicare Advantage (MA).
CVS Health, along with UnitedHealth (NYSE: UNH), is recommended by Piper Sandler as a beneficial investment, especially considering that the CY25 Star Ratings are anticipated to facilitate the maximum capture of the accelerating CY26 rates. CVS is singled out as the top pick due to the potential for MA margin expansion in Calendar Year 2025 (CY25).
The analysis by Piper Sandler included a review of the benefit design for CVS’s 36 largest MA plans, which account for over 25% of CVS’s MA enrollment as of December 1, 2024. A comparison between the supplemental benefits offered in CY24 and those planned for CY25 revealed a projected decrease in the weighted average maximum dollar value of supplemental benefits from $7,432.94 to $4,744.28.
With an assumption of 40% utilization of supplemental benefits in CY24, CVS’s estimated expense per member per month (PMPM) would be $247.76, dropping to $158.14 PMPM in CY25 given the same utilization rate. This reduction could lead to a significant 680 basis points improvement in the MA medical loss ratio (MLR) year-over-year in CY25.
The firm believes that CVS is well-positioned to meet its target of a 100-200 basis points improvement in MA MLR for CY25. The high Star Ratings provide visibility into CY26 and set up the Aetna MA franchise for success amid increasing rates and a stabilizing risk adjustment. With a remarkable 55-year track record of maintaining dividend payments and a current yield of 5.16%, CVS demonstrates strong shareholder commitment.
According to InvestingPro, the company maintains a "GOOD" overall financial health score, suggesting solid fundamentals supporting its growth initiatives. Discover 10+ additional exclusive insights and comprehensive analysis available through the Pro Research Report, helping investors make informed decisions about CVS’s future prospects. The $64 price target set by Piper Sandler is based on 10 times the estimated adjusted earnings per share (EPS) for CY26, which implies a price-to-earnings-growth (PEG) ratio of only 0.6x.
In other recent news, the Federal Trade Commission (FTC) has released a report revealing that major pharmacy benefit managers (PBMs), including Caremark Rx, Express Scripts, and OptumRx, have significantly marked up prices on specialty generic drugs. This has resulted in over $7.3 billion in revenue from 2017 to 2022, contributing significantly to the operating income of their parent companies, CVS, Cigna (NYSE:CI), and United Health.
Furthermore, CVS Health has set its quarterly dividend at $0.665 per share, indicating its ongoing commitment to returning value to shareholders. The company also recently saw its price target adjusted by Baird, reflecting a 16% decrease, but maintaining a Neutral rating. This adjustment is based on CVS’s estimated 2025 earnings per share and potential for future growth, particularly in its Health Care Benefits segment.
Humana (NYSE:HUM), UnitedHealth Group (NYSE:UNH), and CVS Health have benefited from a government proposal that could lead to increased payments for Medicare Advantage plans in 2026. The proposed payment boost, which would be the largest since 2023, could result in an additional $21 billion in payments in 2026 compared to expected payments in 2025.
Finally, as the number of seasonal flu cases across the country increases, vaccine manufacturers, including Moderna (NASDAQ:MRNA) and Novavax (NASDAQ:NVAX), have advanced in premarket trading. Pharmacy chains and hospital firms, including Walgreens and CVS Health, are also being monitored as the flu season progresses. These are the recent developments in the healthcare sector.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.