CVS Health (CVS): Reiterated Buy After Management Meetings - Mizuho
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Mizuho Securities analyst, Ann Hynes, reiterated her Buy on CVS Health (NYSE: CVS) after hosting meetings with CVS CEO Larry Merlo and CFO David Denton. The analyst remains confident that PBMs ability to drive down drug spend via rebates will not change. The spread on gross to net pricing has been widening since 2012, when PBMs first introduced formulary management. Drug trends within CVS's book of business are tracking at only ~ +3.5%, significantly below the industry average of high-single digits, which illustrates the effectiveness of rebates.
Cash flow and capital deployment to shareholders remains a highlight and continued shareholder return via share repurchases, dividend increases and tuck-in M&A. M&A will likely focus on healthcare services and expanding and strengthening its integrated delivery platform.
CVS previously stated that 2016E is expected to be back-half weighted and year-to-date performance should be in-line with expectations. The analyst expects CVS to provide 2017 initial guidance at its annual day in December.
No change to the price target of $111.
Shares of CVS Health closed at $90.18 yesterday.
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