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CVS Health Stock Gets Downgraded. This Analyst Sees Multiple Risks.CVS Health Stock Gets Downgraded. This Analyst Sees Multiple Risks.Barron's (Online); New York Deutsche Bank is stepping to the sidelines on CVS Health stock, warning of potential risks to earnings for the next couple years. Analyst George Hill downgraded his rating on shares of the healthcare business to Hold from Buy. He has multiple reasons for the move, including risks related to CVS's liability in ongoing opioid litigation and changes affecting its pharmacy segment. CVS (ticker: CVS) is a beneficiary of the 340B program, which requires manufacturers like Novartis (NVS) to sell certain drugs at a discounted price to contract pharmacies of hospitals and clinics that treat low-income, uninsured patients. Most recently, 16 of the largest drugmakers announced that they will be either ending or restricting 340B discounts. This means that the number of highly profitable 340B prescriptions filled by retail pharmacies, including CVS and Walgreens, will decline, said Hill. He says this will limit CVS's ability to exceed its earnings guidance. Besides this near-term risk, Hill also sees opioid litigation representing a 1% to 2.5% headwind to earnings per share in 2024. In November, a federal jury in Ohio found that CVS—along with Walmart (WMT) and Walgreens Boots Alliance (WBA)—contributed to the opioid crisis. The company said at the time it didn't agree with the jury's decision. CVS has sued dozens of insurance companies over costs related to the lawsuits it faces, Hills noted. CVS didn't immediately respond to a request for comment. While the outcome of these cases is far from certain, "we believe headlines related to opioid litigation against the pharmacies could remain a risk to CVS shares in the second half of 2022 and 2023," the analyst said. Hill maintained his price target of $110 for the stock, but trimmed his 2022 earnings estimates to $8.13 a share from $8.14. Analysts tracked by FactSet expect $8.27 in earnings per share. CVS stock was down 2.5% to $105.39 in recent trading Tuesday. On average, analysts have an average target price of $117.22 for the stock. |
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