Oppenheimer Joins Chorus Of CVS Analysts Cautious On Near-Term Outlook

Less than a week after BMO Capital Markets downgraded CVS Health Corp CVS, Oppenheimer is stepping to the sidelines. 

The Analyst

Analyst Michael Wiederhorn downgraded CVS from Outperform to Perform and removed the $85 price target.

The Thesis

CVS is more of a long-term opportunity, given the timeline needed to execute on its strategy and near-term legacy business challenges, Wiederhorn said in the Monday downgrade note. 

The company had made several large acquisitions over the last decade, including Coram and Target Corporation TGT pharmacies. Going by CVS' history and the magnitude of the Aetna buy, the analyst said he is taking a prudent stance on the near-term outlook for integration.

The long-term opportunity to reduce costs and improve access to care will take years to play out, Wiederhorn said, adding that this could also detract from earnings due to the time and capital required. 

The managed care segment will account for only 31 percent of CVS' projected earnings in 2019, with the fortunes of the company still hinging on the less lucrative pharmacy business, the analyst said.

Oppenheimer is "not overly bullish" on the near-term outlook for CVS' retail/long-term care and pharmacy benefit manager businesses, which it said face company-specific pressures from contract movement.

Wiederhorn also sees headwinds from industry pressures and an uncertain reimbursement environment.

"Although the valuation appears attractive by historical levels, we expect these factors to dominate the story for the foreseeable future." 

The Price Action

CVS shares were trading up 2.84 percent to $54.31 at the time of publication Monday. 

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