On Nov 27, we reiterated our long-term Neutral recommendation
CVS Caremark Corporation
) following healthy third-quarter 2013 results. This integrated
pharmacy service provider carries a Zacks Rank #3 (Hold).
Why the Reiteration?
On Nov 5, CVS' reported adjusted EPS of $1.05, which surged
23.9% year over year and exceeded the Zacks Consensus Estimate by
3 cents. This marks the seventh consecutive quarter of positive
earnings surprise for CVS. Per management, the improvement was
led by higher profitability on the back of increased generic
drugs dispensed and the growth of Maintenance Choice program in
the Pharmacy Services and Retail Pharmacy segments.
Net revenue improved 5.8% year over year to $31.97 billion in
the third quarter, surpassing the Zacks Consensus Estimate of
$31.49 billion. The top line benefited from higher contributions
from CVS' segments - Pharmacy Services and Retail Pharmacy.
The generic wave in the pharmaceutical industry continues to
work in CVS' favor, as seen in the consistent margin expansion of
the company. Specialty pharmacy represents another high-growth
avenue as specialty revenues grew a robust 22% in the quarter.
CVS raised its guidance for 2013 adjusted EPS to reflect the
strong year-over-year growth and the company's optimism about the
Market dynamics and demographic trends are also working in
CVS' favor. Furthermore, improvements in same-store and pharmacy
store sales during the quarter are an encouraging factor.
However, sluggish front-end same store sales were a downside
in the second quarter. Meanwhile, the mega-merger between
Express Scripts Holding Company
) and Medco Health Solutions and resolution of the
)-Express Scripts impasse has intensified the competitive
landscape putting CVS in a tight spot. The somber macroeconomic
condition adds to our apprehension. Despite several positive
driving events, the tough competition and company-specific
concerns keep us on the sidelines.
Other Stocks to Consider
While we have a neutral disposition on CVS, we are optimistic
Rite Aid Corporation
) doing well. The stock sports a Zacks Rank #1 (Strong Buy).
CVS CAREMARK CP (CVS): Free Stock Analysis
EXPRESS SCRIPTS (ESRX): Free Stock Analysis
RITE AID CORP (RAD): Free Stock Analysis
WALGREEN CO (WAG): Free Stock Analysis Report
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