Barclays upgraded CVS Health Inc (NYSE: CVS) on higher Pharmacy & Consumer Wellness (PCW) estimates as headwinds are offset by share gains, with further upside potential from CostVantage.
Despite macroeconomic pressures impacting the retail pharmacy sector, the analyst writes that CVS has shown resilience thanks to its diversified business model.
This has allowed the company to mitigate some of these challenges and capitalize on market share gains from less financially stable competitors.
For 2025, Barclays estimates market forecasts include expectations of 110 basis points in Medicare margin expansion, which is on the lower end of CVS's target range of 100-200 bps.
Barclays has upgraded CVS from Equal Weight to Overweight, with a price target of $82, up from $63.
By 2026, projections show about 90 bps of margin improvement. Collectively, this suggests a cumulative recovery of 200 bps over two years, placing consensus Medicare margins at approximately -2.0%, which may underestimate the speed of CVS's recovery.
CVS is well-positioned to continue gaining market share in the retail pharmacy space, a trend that Barclays estimates could accelerate in 2025 as Walgreens Boots Alliance Inc (NASDAQ: WBA) moves forward with plans to close over 1,000 of the roughly 2,000 unprofitable stores identified for closure.
While the full impact of Walgreens' store closures will depend on the timing-spread over the next three years-the analyst expects a significant number to close within the first year due to their unprofitability.
CVS has consistently increased its pharmacy market share since the first quarter of 2020, holding 27.2% as of the first quarter of 2024.
Barclays estimates CVS has been gaining approximately 5-10 bps of market share each quarter, with cumulative gains likely exceeding 150 bps since before the pandemic.
Price Action: CVS stock is up 1.66% at $67.07 at last check Thursday.