Following the release of CMS' 2024 MA and PDP Star Ratings on Friday, CVS Health (NYSE:CVS) issued a press release after the close detailing that the percentage of Aetna MA members in 4+ rated plans increased to 87% compared to. 21% the prior year.
Reacting to the release, BofA analysts believe it removes a key overhang for the company.
The firm, which has a Buy rating and a $93 price target on the stock, said the announcement also supports better EPS growth in FY25.
"The return to 4-Star provides a reboot to investor sentiment and could allow CVS to invest additional cash flow in further expanding its care delivery strategy it has been pushing since its December 2021 Investor Day," wrote the analysts at BofA.
"The Medicare Advantage business remains an important strategic growth area for CVS and we expect to hear additional color on FY25 guidance and longer-term earnings growth outlook at the upcoming Investor Day in December. Overall, we view strength in CVS' enterprise growth opportunity and maintain our Buy rating," they added.
Elsewhere, UBS analysts explained the ratings drop a year ago resulted in a material earnings headwind for the company's HCB segment in FY24 and that a bonus payment will return in 2025.
"Management had said at a recent investor presentation that if its stars reverted back that it would look to reinvest back into MA growth in 2025," explained the analysts, who maintained a Buy rating and $90 price target on CVS shares. "Management had previously withdrawn its 2025 guidance of $10 EPS back in August. We expect to get more visibility into how to think about the EPS bridge in 2025 on its 3Q earnings call and/or at its analyst day in December."