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Will Pressure on Earnings Limit the Upside in CVS Health Stock?

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Analysts expect EPS to decline

CVS Health (CVS) impressed investors with its first-quarter sales and earnings, which is likely to support its stock in the near term. Also, management raised the full-year earnings outlook, which is positive. CVS Health’s adjusted EPS is now expected to be in the range of $6.75 to $6.90, up from its previous guidance of $6.68 to $6.88.

Despite a strong first-quarter performance and upbeat guidance, the upside in CVS Health stock could be limited due to the pressure on earnings from higher reimbursements. Analysts expect CVS Health’s adjusted earnings to decline on a YoY basis in the coming quarters. Continued reimbursement pressure, increased interest expenses (reflecting financing of Aetna deal), and a higher outstanding share count are expected to drag CVS Health’s earnings down.

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Rating and target price

Evercore ISI raised its target price on CVS Health stock following the company’s better-than-expected first-quarter results. Evercore ISI raised the target price to $68 per share from $67. However, Baird lowered its target price on CVS stock, reflecting pressure on earnings. Baird now has a target price of $63 on CVS, down from $68.

Among the 28 analysts, 18 recommend a “buy” on CVS Health stock, and ten analysts suggest a “hold.” Wall Street maintains a target price of $69.35 per share on CVS Health, which implies a potential upside of 21.0% based on its closing price of $57.33 on May 1.

As for Walgreens Boots Alliance stock, most of the analysts suggest a “hold.”

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