Deutsche Bank upgrades CVS with recovery on sight

Investing.com -- Deutsche Bank upgraded CVS Health Corp's (NYSE:CVS ) stock to “buy” from “hold” on Tuesday, saying the company’s earnings and valuation are likely at trough levels as it implements measures to improve profitability.

The analysts highlighted a potential turnaround in CVS's managed care organization (MCO) segment, which includes its health insurance business. They noted that earnings from the segment could outperform Wall Street expectations as early as 2025. Describing CVS as a "show me" story, where where investors will need to see success in the MCO segment to regain confidence. 

DB also pointed to key leadership changes as a catalyst for recovery. CVS recently appointed David Joyner as CEO and hired Steve Nelson, a former UnitedHealth Group (NYSE:UNH ) executive, to lead its managed care business. Additionally, under an agreement with activist investor Glenview Capital, CVS added four new board members.

We believe the new leadership, combined with the increased Board oversight, represents the set of fresh eyes needed at CVS to point the company in the right direction,” the analysts said in a note

The firm maintained its price target of $66 but said the stock, which currently trades at 9.4 times its revised 2025 earnings estimate, could see its valuation expand to 10-11 times as earnings growth accelerates. Deutsche Bank (ETR:DBKGn ) expects CVS shares to reach $76-$80 within a year, representing a 30% upside, and $90-$94 over 24 months, based on 2027 earnings estimates.

Potential risks includes healthcare regulatory changes, potential drug pricing reforms, and pressures on retail pharmacy reimbursements.

 

Source: Investing.com