Bernstein on Thursday moved both Cigna Group and CVS Health Corp to Outperform in separate research notes, arguing that recent shifts in the regulatory and competitive landscape for pharmacy benefit managers have eliminated a significant overhang on the sector.
Analyst Lance Wilkes raised his rating on Cigna to Outperform and increased the firms price target to $358 from $307. Wilkes said the changes related to PBM policy and market structure - including a new PBM transparency bill, an FTC settlement and Cignas own PBM model adjustments - create conditions for Cignas valuation multiple to expand over time.
To reflect that view, Bernstein raised the target multiple applied to Cigna from 9.5x to 11x. Wilkes noted that the Evernorth segments implied multiple is being revised higher, from roughly 8.5x to about 10.5x. He also said he is comfortable with Cignas ongoing leadership transition and does not anticipate a highly dilutive acquisition in the near term. Over the longer horizon, Wilkes suggested Cigna may need to grow government-managed-care operations or explore non-insurance service lines, though he framed those possibilities as longer-term strategic considerations rather than immediate actions.
Wilkes likewise upgraded CVS to Outperform and nudged its price target to $94 from $91. He said the PBM reforms are reducing the uncertainty overhang that had weighed on CVS while the Aetna insurance unit gains traction. Bernstein expects Aetnas earnings to "nearly double over the next 3 years" as Medicare Advantage margins normalize, a key driver of the firms more optimistic outlook for CVS.
On a company- and sector-wide basis, Bernstein models modest EPS growth in 2026 as PBM margin pressure persists, followed by a return to steadier expansion through 2027-2029. The firm projects a 9% compound annual growth rate for that later period. Following the upgrades, Bernstein also increased CVS valuation assumption, moving to 12x next-twelve-month (NTM) EPS.
Context and implications
- Bernstein cites policy and legal developments around PBMs, alongside company-level changes, as the primary reason for re-rating both stocks.
- Valuation multiples for Cigna (Evernorth segment) and CVS have been adjusted higher to reflect reduced uncertainty and expected earnings momentum.
- Outlook assumptions include limited near-term EPS growth in 2026 with stronger expansion from 2027-2029, driven in part by normalization of Medicare Advantage margins for Aetna.