Healthcare stocks and sector-related ETFs were among the best performing segments of the markets Wednesday, with CVS Health Corp (NYSE: CVS) rallying on a bullish call out from Bernstein analysts.
Among the best performing non-leveraged ETFs of Wednesday, the iShares U.S. Healthcare Providers ETF (NYSEArca: IHF) increased 2.1%. Meanwhile, the more widely observed Health Care Select Sector SPDR ETF (NYSEArca: XLV) gained 1.0%.
Lifting the segment higher, CVS shares jumped 3.2% and was nearly 4% higher earlier in the session. CVS makes up 6.8% of IHF’s underlying holdings.
CVS shares advanced after Bernstein analyst Lance Wilkes initiated an outperform rating and a $76 price target, or a 41% upside potential from the stock’s opening price of $55.61 Wednesday, The Street reports.
The Bernstein analyst believed that CVS and Aetna will lead in value-based care, but Wilkes also warned that CVS will need to invest $10 billion in capital over the next five to seven years to build out its capabilities.
While Wilkes also anticipated CVS/Aetna to be the long-term winner in healthcare, the company’s retail pharmacy business will be expected to generate more stable volume growth but compressed volumes as bulk prescriptions may ultimately move toward online sales.
“We are bearish on PBMs [pharmacy benefit managers]and expect 70% of prescriptions to ultimately move online. And we are initiating on CVS at Outperform with a PT of $76 (41% upside). We believe the current price doesn’t reflect Aetna’s solid MCO business and the LT value of a care delivery strategy at retail. We think the current valuation already reflects potential shock to PBM margins and future deterioration in the retail business…,” according to Bernstein.
The analysts’ comments come shortly after CVS received an invitation from the Senate Finance Committee to testiy before Congress on April 3. Some more vocal senators have been extremely critical of pharmacy benefit managers like the CVS Caremark unit, arguing that they act as unnecessary middle men that simply skim profit from transactions between pharmaceutical companies and consumers, The Motley Fool reports.
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