CVS in slight recovery after PBM contract loss
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CVS Health (NYSE:CVS) traded marginally higher on Friday, marking a slight recovery from the previous session when its shares sold off after Blue Shield of California replaced the company's CVS Caremark unit with a new model for pharmacy benefits management.
The non-profit health insurer said that U.S. insurers and employers could follow its new multi-party arrangement, which also involves Amazon (AMZN), with a limited contribution from CVS (CVS).
Shares of other PBM operators, such as Cigna (NYSE:CI), UnitedHealth (UNH), and Elevance Health (ELV), also traded lower in reaction.
However, Wall Street, as well as CVS, rule out near-term headwinds. In a regulatory filing, the pharmacy retailer reiterated its 2023 guidance, noting that the loss of the PBM contract will only have an immaterial impact on its longer-term outlook.
Despite concerns over disruption from Amazon (AMZN) in the pharmacy space, RBC Capital Markets called Blue Shield of California's aim to achieve cost savings from the new model a "show-me story."
Noting that CVS (CVS) will continue to fulfill the specialty pharmaceutical needs of the insurer, RBC reiterates its Outperform rating and $91 per share target on the stock.
Truist analyst David MacDonald agreed. He argued that the new model, expected to take effect in 2025, will only have a modest financial impact as the company retains the business for specialty drugs, which account for more than 50% of the PBM expenditure.
With bullish views on the PBM industry in general and citing the company's cash flow generation and discounted valuation, MacDonald reaffirmed his Buy rating and $98 per share target on the stock.

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