CVS Is Transforming Health Care, Piper Sandler Says In Upgrade

Piper Sandler analyst Sarah E. James initiates coverage on CVS Health Corp CVS with an Overweight rating and a $72 price target.

The CVS Takeaways: “CVS is well positioned to transform health care access,” James wrote in a note. The company’s large footprint, growth in Medicaid, and new programs are among the reasons she initiated a bullish rating.

Seventy percent of the U.S. population lives within three minutes of a CVS store. James believes the company’s expansion of its HealthHubs are helping drive customers to stores and improve margins.

“See potential for best in class diversified healthcare delivery model with long term margin expansion. We believe leveraging pharmacy expertise and integrating retail/HealthHubs create attractive, local care delivery,” James said. “We believe CVS’ commitment to innovative tech and the Aetna integrations will drive the company’s long term growth beyond the legacy depiction of a retail pharmacy/PBM into a transformative healthcare company."

Gaining Customer with COVID-19 Tests: CVS Health has performed over 3 million COVID-19 tests. The company has the capacity to complete 1.5 million per month. James notes that 40% of those tested were not current CVS pharmacy customers.

“We believe the pandemic provides CVS with the opportunity to extend/accelerate its digital engagement strategy to customers and non-customers alike,” James said.

The 1,940 CVS locations that offer testing are significantly higher than rivals Rite Aid Corporation RAD with 258 locations and Walgreens Boots Alliance Inc WBA with 124 locations.

Boost From Joe Biden Win: James is forecasting a Joe Biden presidential win could fuel Medicaid expansion, which would benefit CVS. James estimates $700 million in revenue growth from a Biden win. The note estimates $8.4 billion in Medicaid related revenue for CVS in the current fiscal year.

Price Action: Shares of CVS Health were modestly higher at $57.90. Shares have traded between $52.04 and $77.03 over the last 52 weeks and are down 23% in 2020.