CVS Growth May Have Weakened, But Credit Suisse Still Sees Catalysts

"Specifically, estimated new PBM business wins, of $7.3 billion, including Medicare lives year to date, should drive its top line, as will growing pharmacy share of its larger PBM book of business," analyst Robert Willoughby wrote in a note.

CVS booked record net new business of $13.1 billion for its PBM business for 2016. Despite stiff competition from both Express Scripts Holding Company ESRX and UnitedHealth Group Inc UNH's OptumRx, Willoughby still expects year-over-year revenue growth of 6.2 percent in 2017.

Meanwhile, CVS reported net new business of $4.6 billion year-to-date, which the analyst described "a good enough start to the year."

The analyst also pointed out that CVS has added 1,032,000 Medicare Part D lives year to date, while Aetna Inc AET, its largest customer, has added 564,000 lives.

"Importantly, Medicare beneficiaries are high octane lives from a drug utilization standpoint, and if we assume each life conservatively contributes 20 prescriptions per year, the total contribution could be $2.7 billion in annualized revenues for CVS that is not included in its net new PBM business wins calculation," Willoughby highlighted.

Others In The Space

Meanwhile, on September 8, Walgreens Boots Alliance Inc WBA reaffirmed it expects the pending merger with Rite Aid Corporation RAD to close by the end of the year. However, it indicated it would have to sell more stores, a move that would benefit CVS.

The analyst said potential acquisitions of Walgreens/Rite Aid stores, a dividend hike and investor day in December should boost EPS growth and the appeal of the stock, which declined 8.1 percent from an August high and fell 7.8 percent year to date. On the other hand, the S&P 500 saw 1.1 percent drop and 4.7 percent increase for the respective periods.

At time of writing, shares of CVS rose 1 percent to $90.06. The analyst's price target of $115 assumes the shares can trade at 10.5x his 2017 EBITDA forecast, nearer a prior high.

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