CVS Health (CVS) Stock Drops 10% on Medicare Downgrade

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Stocks of a retail pharmacy chain and healthcare solutions provider SVC Health (NYSE:SVC) are down more than 10% today. On Thursday, the company announced that its largest health insurance plan for Medicare beneficiaries received a lower performance rating from the underlying federal program. Immediately after the news, CVS stock fell. Now it keeps printing red ink.

According Reuters, CVS filed a regulatory filing late Thursday that revealed that “new star ratings for Medicare Advantage plans in 2023 lowered the company’s Aetna National PPO plan rating to 3.5 stars from 4.5.” According to the outlet, the reduced rating means the plan is “ineligible for government performance-based bonuses in 2024 and is likely to have an impact on revenue”. The scheme has more than 1.9 million members.

Star ratings represent performance and quality scores from the US Centers for Medicare & Medicaid Services. These are based on annual consumer surveys.

Chance synchronization for CVS stock

To be fair, Evercore analysts reported that the entire health insurance industry suffered a ratings downgrade. Thus, the challenge is not exclusive to CVS stock. However, experts had anticipated the downgrade of the industry due to normalization initiatives following an artificial rally resulting from the pandemic.

To help bolster CVS stock, management attempted to reassure stakeholders that the company was still aiming to increase adjusted earnings per share (PES) “at low double-digit year-over-year rates in 2024”.

Moreover, by TipRanksthe management team is “evaluating a variety of operating initiatives and capital deployment alternatives, including share buybacks, to help offset this headwind to projected earnings.”

Unfortunately, this news does not help CVS action on Friday. For now, however, the analyst consensus rating for CVS is still a “Strong Buy” on TipRanks. Wall Street pundits have an average price target of $123 per share for CVS.

As of the date of publication, Josh Enomoto did not hold (either directly or indirectly) any position in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com publishing guidelines.

A former senior business analyst for Sony Electronics, Josh Enomoto helped negotiate major contracts with Fortune Global 500 companies. Over the past several years, he has provided critical and unique insights to investment markets, as well as various other industries including law, construction management and healthcare.

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