CVS Caremark Corporation
), one of the largest domestic integrated pharmacy services
providers, recently updated its fiscal 2013 outlook and
highlighted its growth framework, while reiterating its earlier
guidance for the current year.
For fiscal 2013, the company expects earnings per share (EPS)
of $3.59−$3.73 with adjusted EPS of $3.84−$3.98, representing
annualized growth of 13%−17%. The current Zacks Consensus
Estimate of $3.78 falls below the adjusted EPS guided range. The
company also expects free cash flow to remain at an encouraging
level of $4.8 billion- $5.1 billion with cash from operations of
$6.4 billion−$6.6 billion.
CVS noted that the fiscal 2013 guidance excludes the
anticipated benefit from the company's recent debt tender and
refinancing, which is expected to result in an annual EPS
accretion of approximately 2 cents due to the reduction of the
Further, CVS continued with its plan to deploy capital to
boost shareholder confidence via dividends and share repurchases.
The company expects to buy back shares worth $4 billion in fiscal
2013. Additionally, its board of directors has approved a
38% increase in quarterly dividend to 22.5 cents per share,
payable February 4, 2013. This hike will bring the payout ratio
to 25%, the low end of its targeted range of 25%-30%, which will
likely be achieved in another three years.
Reiterates 2012 Outlook
Anticipating a benefit from the company's accelerated share
repurchase program (announced in September 2012) and its
expectation of retaining at least 60% of the prescriptions gained
Express Scripts Holding Co.
) impasse, CVS expects adjusted EPS in fiscal 2012 to remain in
the range of $3.38−$3.41. The current Zacks Consensus Estimate of
$3.37 falls below the guidance range.
The company also reiterated its 2012 free cash flow and cash
flow from operations guidance of $4.6-$4.9 billion and $6.2-$6.4
billion, respectively. The fiscal 2012 guidance includes the
completion of the accelerated share repurchase agreement of $1.2
Obamacare: A Big Boost
While discussing the long-term growth trajectory, CVS expected
the implementation of the Affordable Care Act (ACA) or Obamacare
to play in favor of the company by providing the much needed
impetus to its business. CVS is upbeat regarding the fact that
under the ACA, beginning 2014, there will be an additional 30
million people to join in the list of insured people. The company
believes that with this massive increase in the insured aging
population, there will be a huge demand for specialty drugs,
which could present a big opportunity for companies like CVS.
We are impressed with the company's fiscal 2013 guidance,
which remained above our expectation. We are also confident about
CVS' long-term potential, based on its retail execution,
deployment potential and the strong generics cycle. Moreover, we
believe that the healthcare reform will open up new opportunities
for the company. Currently, CVS retains a Zacks #3 Rank
(short-term Hold). Over the long term, we have a Neutral
recommendation on the stock.
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