CVS Health Rating Upgrade

Analysts at TD Cowen have raised their rating of CVS Health (NYSE: CVS) from Hold to Buy, citing changes to its 2025 Medicare Advantage plan benefits announced earlier this week.

On Tuesday, CVS, along with peers such as Humana (NYSE: HUM) and Cigna (NYSE: CI), unveiled details of its government-backed health insurance plans for individuals aged 65 and older, ahead of Medicare Advantage enrollment starting later this month.

The U.S. government compensates private insurers like CVS a fixed rate to manage Medicare Advantage plans, which provide older individuals additional benefits not normally included in standard government coverage. According to the Centers for Medicare and Medicaid Services (CMS), enrollment in Medicare Advantage plans is projected to grow to 35.7 million individuals in 2025.

TD Cowen analysts noted that CVS’s updated Medicare Advantage plan features “meaningful” cuts in over-the-counter medication benefits and lower allowances for dental coverage. They predict a rise in enrollment for CVS’s highly-rated 4-star plans, from 73% in 2024 to 90% next year. The star ratings assess the performance of health and prescription drug plans, as evaluated by CMS.

The analysts expressed confidence that 2024 will be a baseline year for CVS shares and project double-digit adjusted earnings per share growth for 2025 and beyond.

As of Friday’s premarket trading, shares of CVS Health from Rhode Island were slightly up but had dropped over 22% this year, amidst investor worries regarding its performance. Reports suggest that CVS is considering restructuring, including potentially separating its retail and insurance divisions.

Additionally, the company announced layoffs of approximately 2,900 employees, or just under 1% of its total workforce, primarily affecting corporate roles rather than those in its stores and pharmacies.