On Friday, TD Cowen reaffirmed its Buy rating on CVS Health (NYSE:CVS) with a steady price target of $85.00. The firm's optimism is bolstered by the recent release of the Centers for Medicare & Medicaid Services (CMS) 2025 Star Ratings. The ratings, which will influence the 2026 plan year, revealed that approximately 89% of CVS's membership is enrolled in plans that have achieved 4 stars or higher. Notably, 70% of the membership is in 4.5-star plans, marking a significant increase from 46% in the previous year.
The CMS Star Ratings are a critical factor for health plans, as they directly affect the plans' future enrollment and federal reimbursements. A higher star rating can lead to increased membership and revenue, while a lower rating can have the opposite effect. The star ratings are based on several criteria, including quality of care and customer service.
CVS Health's strong performance in the CMS Star Ratings is a positive development for the company. The substantial growth in the proportion of members in 4.5-star plans demonstrates an improvement in the quality and appeal of CVS's offerings. This could potentially lead to greater customer satisfaction and loyalty, which are important for the company's long-term success.
According to the analysis from TD Cowen, the latest star ratings confirm their earlier upgrade analysis and reinforce their confidence in CVS Health's Medicare Advantage (MA) turnaround. The improvement in star ratings is seen as an endorsement of the company's efforts to enhance its MA plans and services.
Investors and stakeholders in CVS Health may view the maintained Buy rating and price target as a sign of the company's continued progress and potential for growth, especially in the competitive healthcare market. The star ratings are likely to play a significant role in shaping CVS Health's strategy and performance in the upcoming plan year.
In other recent news, CVS Health has seen significant developments in Medicare plan ratings, stock upgrades, and legal proceedings. The U.S. government released the 2025 quality ratings for Medicare health and prescription drug plans, which may influence bonus payments for health insurers like CVS Health in 2026. However, a decrease in four-star plans could impact plan enrollments, as noted by analyst Joanna Gajuk from Bank of America.
CVS Health has also seen notable stock upgrades from Barclays and TD Cowen, with Barclays upgrading the stock from Equalweight to Overweight and raising the price target significantly. This change reflects an anticipated margin recovery opportunity, with potential benefits from cost-saving measures and market share gains. TD Cowen has also upgraded CVS Health from Hold to Buy, predicting a 15% year-over-year increase in earnings per share for 2025.
In legal matters, CVS Health, UnitedHealth Group (NYSE:UNH), and Cigna (NYSE:CI) have requested the recusal of U.S. Federal Trade Commission Chair Lina Khan and commissioners Rebecca Kelly Slaughter and Alvaro Bedoya from a lawsuit alleging wrongful inflation of insulin prices. The companies argue that the commissioners have shown bias against pharmacy benefit managers, potentially compromising the fairness of the proceedings.
Furthermore, CVS Health recently announced the layoff of approximately 2,900 employees as part of its ongoing strategy to reduce expenses and improve efficiency. The company also revealed new Medicare Advantage plans featuring a $0 monthly premium on prescription drugs.
InvestingPro Insights
CVS Health's strong performance in the CMS Star Ratings is further supported by recent financial data and insights from InvestingPro. The company's market cap stands at $84.1 billion, reflecting its significant presence in the healthcare sector. CVS's P/E ratio of 11.83 suggests that the stock may be undervalued compared to its earnings, which aligns with TD Cowen's bullish outlook.
InvestingPro Tips highlight that CVS has maintained dividend payments for 54 consecutive years, demonstrating a commitment to shareholder returns that complements its focus on quality in Medicare Advantage plans. The company's dividend yield of 3.98% may be attractive to income-focused investors.
Moreover, CVS's revenue growth of 7.03% over the last twelve months indicates the company's ability to expand its business, which could be partly attributed to its high-performing Medicare plans. The strong return of 19.14% over the last month suggests that the market is responding positively to CVS's recent developments, including the improved Star Ratings.
For investors seeking a deeper analysis, InvestingPro offers 11 additional tips that could provide further insights into CVS Health's financial health and market position.
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