Barclays has raised its rating on CVS Health Inc (CVS) to Overweight, citing strong performance in the Pharmacy & Consumer Wellness (PCW) segment. The analysts are particularly optimistic about CVS’s ability to capitalize on cost-saving initiatives, dubbed CostVantage, which they believe will further boost the company’s performance.
Despite macroeconomic pressures impacting the retail pharmacy sector, CVS has shown resilience. This is largely attributed to its diversified business model, which has enabled the company to mitigate some of the challenges and even gain market share from less financially stable competitors.
Barclays expects continued market share growth for CVS, particularly in 2025, as Walgreens Boots Alliance Inc (WBA) proceeds with its plan to close over 1,000 unprofitable stores. While the full impact of these closures will unfold over the next three years, analysts believe a significant portion of these stores will be closed within the first year due to their unprofitability. This move is expected to benefit CVS as it continues to expand its reach in the retail pharmacy space.
CVS’s performance has been particularly strong in recent years, with consistent increases in its pharmacy market share since the first quarter of 2020. As of the first quarter of 2024, CVS holds a commanding 27.2% share of the market. Barclays estimates that CVS has been gaining roughly 5-10 basis points of market share each quarter, with cumulative gains exceeding 150 basis points since before the pandemic.
Looking ahead, Barclays projects that CVS’s Medicare margins will expand by 110 basis points in 2025, which is on the lower end of CVS’s target range of 100-200 basis points. This expansion is expected to continue into 2026, with projected margin improvement of about 90 basis points. Collectively, these projections suggest a cumulative recovery of 200 basis points over two years, placing consensus Medicare margins at approximately -2.0%. However, Barclays believes that this estimate might underestimate the speed of CVS’s recovery.
With a price target of $82, up from $63, Barclays sees significant upside potential for CVS stock. As of Thursday, CVS shares were trading at $67.07, up 1.66% on the day.
