CVS Health to Bolster Earnings Growth as RBC Sees Opportunities for Value Creation After Aetna Deal

2:43 PM, Sep 27, 2019 — CVS Health (CVS) is poised to accelerate earnings growth and the company is set to take a leading role in changing healthcare delivery after its tie-up with Aetna last year, RBC Capital Markets said in a note Friday.

The bank assumed coverage on Woonsocket, RI-based CVS with an outperform rating and an $85 price target, analyst Anton Hie said. The market is under appreciating the “attractive growth opportunities” in the pharmacy operator because of near-term headwinds and threats, he said.

“CVS’ unique vertically integrated model positions it well as a leader in transforming the delivery of healthcare,” said Hie in the note. “We expect EPS growth to accelerate toward the long-term target in the low double digits by 2022.”

In November, CVS closed its acquisition of Aetna in a deal that valued the health-insurance company at $70 billion. The combination opened “multiple opportunities for value creation,” Hie said. The integration is on track to top the near-term synergy target of $750 million, RBC said.

Shares in CVS are trading “well below historical ranges” amid concerns about the pharmacy benefit manager business model and reimbursements, RBC said. The company’s management has said it’s flexible enough to adapt to the changes, according to the analyst.

“As near-term headwinds diminish and as CVS delivers anticipated value and accelerated EPS growth over the next few years, we expect the multiple to return to historical average levels, resulting in strong returns for shareholders,” Hie said.

Leverage taken on for the Aetna deal is a risk for CVS, while efforts to lower drug prices could have “unintended consequences” on the pharmacy benefit manager and managed care organization businesses, Hie said. The downside scenario price on the stock is $42, while its upside target is $106.

Companies: CVS Health Corporation
Price: 61.80 Price Change: +0.21 Percent Change: +0.34