Analysts lowered price targets on
CVS Health
Thursday after a big insurer said it was turning away from the pharmacy benefit management industry and would use other services to manage its drug benefits.
Blue Shield of California’s decision not to use the PBM, which negotiates prices on behalf of insurers, is a setback for CVS (ticker: CVS) and a potential threat to
Cigna
(CI) and
UnitedHealth Group
(UNH), which also own pharmacy-benefit managers. CVS shares slipped 0.8% in premarket trading to $66.30, after losing 8% in Thursday trading.
Yet many analysts still see CVS as a Buy.
“We would be buyers of CVS and CI on today’s weakness,” said Mizuho analysts Anne Hynes and Dillon NIssan in a note on Thursday. With regards to Blue Shield’s plan to source more drugs from
Amazon.com
and others, “we are skeptical this model will gain widespread traction.”
Raymond James analysts led by John W. Ransom agreed. “While we understand the knee-jerk market reaction, we do not think it’s likely that many other large organizations will follow Blue Cross of California in the short term until they see if this arrangement can actually deliver the proposed savings and avoid execution snafus,” they wrote in a note.
RBC Capital Markets lowered their price target on CVS to $91 from $102, but still rate the stock a Buy.
Deutsche Bank analysts Pragya Gupta, George Hill and Maxi Ma struck a different tone. They expect others to move away from PBMs as well, though perhaps in different ways. They have a Hold rating on CVS.
Write to Brian Swint at [email protected]
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