Deutsche Bank: CVS Is “Top Pick” For Pharmacy Stocks

Analysts argue CVS can take advantage of changes to prescriptions and healthcare regulations.

CVS is finally starting to rebound after a tumultuous 2019. The pharmacy stock’s shares started to rise after a positive second-quarter earnings report in early August. And this week, analysts at Deutsche Bank named CVS the “top pick” in the healthcare industry. 

The analysts initiated coverage with a buy rating and a $91 price target. And this rating isn’t an outlier but seems to be the consensus when it comes to CVS. Overall, analysts consider the stock a strong buy and the average price target is $71.80, which represents a 12% upside.

Why the sudden goodwill toward CVS?

The biggest advantage of CVS is that the stock is cheap right now but the company’s fundamentals look good. It certainly seems to be one of the better pharmacy stocks on the market right now. 

For one thing, CVS continues to expand while many of its competitors are contracting. The company just finalized its acquisition of Aetna, a process that has been a year in the making. So far, this acquisition seems to have given CVS a huge boost.

In comparison, Walgreens plans to close 200 stores in the U.K. alone. And the pharmacy is still dealing with the fallout of its Rite Aid acquisition. Walgreens plans to close an additional 750 Rite Aid stores.

In comparison, CVS is opening up new pharmacy locations across the U.S., though not at the same pace it was several years ago. And the company continues to focus on its innovative in-store health services. 

Earlier this year, CVS began testing out a concept called HealthHUBs. HealthHUBs provide care for a range of health services and provides medical equipment for certain conditions like diabetes. CVS plans to have 1,500 additional HealthHUBs available by 2021. 

Challenges still lie ahead for CVS

Of course, many challenges still lie ahead for CVS. For one thing, Amazon is attempting to enter the healthcare business with its purchase of the online pharmacy PillPack. Amazon is known for disrupting industries but analysts at Deutsche Bank played down the impact of this. 

Overall, CVS’s most recent earnings report was encouraging and the company’s fundamentals seem strong. If CVS can maintain this momentum, it could be a good investment going forward.