CVS Health Corp (NYSE:CVS) has been upgraded by UBS analysts who cited greater confidence in the company’s recovery trajectory and multiple levers for earnings growth.
The analysts upped their rating to ‘Buy’ from ‘Neutral’ and raised their price objective to $79 from $67, implying upside from its share price on Monday afternoon of about $70.
The analysts highlighted that CVS has delivered two strong consecutive quarters of execution and that fixes in its Healthcare Benefits (HCB) segment are showing early signs of progress.
UBS now projects earnings per share growth of 14% on a compound annual basis through 2028, above the 12% consensus estimate.
“Critically, the benefit cuts and assumptions CVS made around Medicare Advantage utilization this current plan year have proved to be on-point,” the analysts wrote, adding that this gives them more conviction in management’s ability to forecast and manage medical cost trends.
That ability is seen as especially important as CVS reprices about half of its multi-year contracts in its group Medicare Advantage business this year, where margins are currently running in the negative mid- to high-single digits.
UBS also pointed to balance sheet improvement as a driver of future upside, modeling a return to a mid-3x leverage ratio by the fourth quarter of 2026. That would provide “runway for earnings growth via buybacks,” the analysts wrote.
They also highlighted valuation, noting that CVS is trading at roughly nine times projected 2026 earnings per share, below its 10-year average of 10 times, despite above-average growth expectations.
UBS estimates CVS could see a $784 million lift in 2026 group Medicare Advantage EBIT, about $0.46 per share, driven by margin improvement, along with a $100 million, or $0.06 per share, boost from the Rite Aid store and file acquisition.
Key risks include October’s Medicare Advantage Star ratings and potential Most Favored Nation drug pricing rules. UBS noted, however, that 65% of CVS’ plan lives are already in 4.5-star plans, supporting bonus payments, and said management’s Stars strategy appears “market leading.”
On drug pricing, the firm sees limited near-term impact, with any disruption to pharmacy benefit managers likely offset by lower medical costs or pharmaceutical tariffs.