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Investing.com -- UBS upgraded CVS Health (NYSE:CVS) to Buy from Neutral and raised its price target to $79, saying recent cost controls and execution in the company’s healthcare benefits arm are beginning to show results and the improvement is not yet priced into the stock.
The brokerage said CVS has posted two consecutive quarters of stronger-than-expected results, helped by better forecasting of Medicare Advantage utilization and early signs that fixes to its underperforming group insurance segment are working.
UBS now expects CVS earnings to grow at a 14% compound annual rate through 2028, above its previous forecast and the Street’s estimated 12%.
Analysts pointed to CVS correctly cutting benefits and recalibrating assumptions in its Medicare Advantage plans for this year, leading to a more stable claims trend and meaningful reserve release.
They estimate the group Medicare Advantage business, where roughly half of contracts are being repriced in 2025, could move from negative mid-to-high single-digit margins to positive territory, contributing an estimated $0.46 per share in 2026 earnings.
UBS also expects CVS to return to roughly 3.5x leverage by late 2026, creating room for share buybacks and further earnings growth.
At around nine times 2026 earnings, the stock trades below its long-term historical average of 10 times, despite a reaccelerating growth profile.
Risks include potential deterioration in Medicare Star quality ratings in October, and pending U.S. regulation on drug pricing or pharmacy-benefit managers. But UBS said CVS remains confident in its Stars positioning, noting that about 65% of plan members are in contracts rated 4.5 stars or higher well above the bonus threshold.