Morgan Stanley Downgrades CVS Health Amid An 'Increasingly Competitive' PBM Market

Following five years of robust market share gains and outperforming the S&P 500 by 88 percent, CVS Health Corp CVS has been facing increased competition from OptumRx in the PBM market, which is likely to lead to a slowdown in CVS Health’s “winning streak,” while capping stock performance.

Morgan Stanley’s Ricky R. Goldwasser downgraded the rating on CVS Health from Overweight to Equal-weight, lowering the price target from $111 to $104.

Increased Competition

“Three years after exiting its legacy relationship with Medco and with newly acquired scale post the Catamaran acquisition,” Goldwasser mentioned that OptumRx has emerged as a strong competitor in the current selling season, having won marque CVS Health maintenance choice accounts.

CVS Health had made robust gains during the PBM selling season over the past five years and has benefitted from its innovative offerings and the challenges faced by its competitors.

Slower Growth Expected

However, with OptumRx offering a differentiated integrated solution, it has been able to capture the mind share of plan sponsors.

CVS made strong gains in the PBM selling season over the last five years and benefited from an innovative offering and the struggles of its competitors.

“With increased competition we think next phase of growth would be slower paced for CVS,” Goldwasser added.

The EPS estimates for 2017 and 2018 have been lowered to reflect the increased competition in the marketplace in the out years.