Shares of CVS Health (CVS) were on an upswing in trading on Friday after TD Cowen analyst Charles Rhyee upgraded the stock to Buy from a Hold, citing recent changes to the company’s 2025 Medicare Advantage plan benefits. The analyst’s upgrade reflects growing optimism about CVS’s future performance.
CVS Reveals 2025 Medicare Advantage Plan Details
Earlier this week, CVS unveiled the details of its government-backed health insurance plans for next year, targeting individuals aged 65 and older. This announcement precedes the upcoming enrollment period for Medicare Advantage benefits. As part of the plan, CVS estimates that 83% of its Medicare-eligible beneficiaries will have access to a $0 monthly premium plan.
Under these plans, the U.S. government pays private insurers like CVS a fixed rate to manage Medicare Advantage plans, which offer additional benefits not typically covered by standard government insurance. According to the Centers for Medicare and Medicaid Services (CMS), enrollment in Medicare Advantage plans is expected to reach 35.7 million people by 2025.
CVS’s 2025 Medicare Plan Sees “Meaningful” Benefit Cuts
In his note to clients, analyst Rhyee highlighted that CVS’s latest Medicare Advantage plan included “meaningful” reductions in benefits for over-the-counter medications and smaller allowances for dental coverage. Despite these changes, CVS is expected to see a significant rise in enrollment for its highly-rated 4-star plans, with a projected increase to 90% next year from 73% in 2024.
These star ratings, issued by the CMS, are important indicators of the performance of health and prescription drug plans.
Furthermore, the analyst remained confident about CVS’s growth trajectory and commented, “This gives us greater conviction that 2024 represents a floor for shares, as well as great confidence in CVS’s ability to see [double-digit] adjusted [earnings per share] growth in [2025] […] and beyond.”
Rhyee also raised his price target to $85 from $59, implying an upside potential of 31.2% from current levels.
Is CVS Mulling Splitting Its Businesses?
Meanwhile, there have been reports suggesting that CVS is considering various options to restructure the business, including a potential split of its retail and insurance divisions.
Moreover, in line with cost-cutting measures, CVS announced earlier in the week that it would lay off around 2,900 workers, representing just under 1% of its workforce.
Is CVS a Good Stock to Buy Now?
Analysts remain cautiously optimistic about CVS stock, with a Moderate Buy consensus rating based on seven Buys and seven Holds each. Year-to-date, CVS has declined by more than 15%, and the average CVS price target of $64.58 implies a downside potential of 0.3% from current levels.
