CVS Health's Outlook For Next Year Hampered By 2 Factors

While mentioning the pullback in CVS Health Corp CVS shares in recent months, Jefferies’ Brian Tanquilut expressed concern regarding the stock’s outlook for the next 12 months.

Tanquilut initiated coverage of the company with a Hold rating and price target of $82.

Stock Performance

The analyst believes the outlook for the stock over the next 12 months would be hampered by “1) the company's likely inability to drive meaningful EPS upside given upcoming retail pharmacy market share losses and 2) the overhang from investor concerns about PBM contracting.”

Contract Losses

Tanquilut explained that retail pharmacy contract losses, along with the impact of declining store traffic on front-end sales, would limit upside potential for CVS Health’s EPS, which in turn would limit the near term performance of the stock.

In fact, the analyst believes the PBM contract losses could lead to an overhang on the stock that was likely to re-intensify in the spring of 2017.

Although the impact of the three contract that CVS Health lost in 2016 would be minimal, “investors are concerned that Optum could target more of CVS's contracts once the 2018 selling season begins,” Tanquilut stated.