Wolfe Research Analysts: 'Good News … More Drugs!'

In a report published Tuesday, Wolfe Research analyst Scott Mushkin commented Express Scripts Holding Company's (NASDAQ: ESRX) 2014 Drug Trend Report that highlighted prescription drug spending in the U.S. rose 13.1 percent last year -– marking the fastest rate relative to the last decade.

Mushkin noted that the spending increase was driven in large part by specialty medications such as those for Hepatitis C. Excluding Hepatitis C and other compounded medication, spending rose 6.4 percent year-over-year. The analyst also added that specialty drug spending continues to "rocket higher," increasing approximately 31 percent year-over-year and now represents around 32 percent of total spending on medication.

"The increased spending on medications is likely to help CVS Health Corp (NYSE: CVS) disproportionately," Mushkin wrote. "The company's vertical PBM/Retail model has proven itself to be a very good tool for payors/customers to hold prescription drug spending to levels below what the market is experiencing."

Mushkin further explained that CVS Health is bringing its expertise to the specialty market with products such as Specialty Connect that allows consumers to pick-up prescriptions either in-store or through mail.

Bottom line, Mushkin argued that CVS Health is a "must-own equity" as the company will benefit from positive industry trends while the valuation remains "quite attractive" at 19.4x Next Twelve Months consensus earnings per share.

Shares of CVS Health are Outperform rated with a $109 price target.