Baird lowered its 2017 earnings per share estimate for CVS Health Corp CVS, blaming the action on last Friday's news that CVS will be taken off the Tricare Network in December.
Elaborating on Friday's news, analyst Eric Coldwell noted that Tricare of the government Department of Defense conveyed its intention to add Walgreens Boots Alliance Inc WBA to its national retail pharmacy network and remove CVS from it. The analyst estimates the share of CVS in the approximately 130 million Tricare total scripts to be 25 percent.
Consequently, Baird removed $2.25 billion of revenues from its estimates for CVS, starting December 1, with most of the loss in traditional retail. The EPS impact estimated using the average operating margin is less than 2 percent.
The firm noted that the company sees neutralized brand inflation across platforms. However, the firm sees downside pricing risk following EpiPen and distributor comments. Accordingly, the firm lowered its estimates.
Despite the estimate reduction, Baird maintained its Outperform rating, citing a trio of factors, namely valuation, quality platform and a strong track record. However, the price target was lowered to $104 from $111.
At time of writing, shares of CVS Health were down 1.15 percent at $87.87.
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