On Aug 12, 2014, we issued an updated research report on
CVS Caremark Corporation
). Following an unimpressive first quarter, CVS Caremark is back in
form with second quarter beats on both EPS and revenue fronts.
Adjusted earnings per share (EPS) shot up 16.5% year over year
to $1.13. The EPS number also surpassed the Zacks Consensus
Estimate by 3 cents as well as the company-provided guidance range
of $1.08 to $1.11. Net revenue on the other hand, increased 10.7%
to $34.6 billion, edging past the Zacks Consensus Estimate of
The Pharmacy Services segment was positively impacted by growth
in specialty pharmacy and favorable purchasing economics. Likewise,
the Retail Pharmacy segment benefited from increased sales and an
improved margin rate, partially offset by incremental store
operating costs associated with operating more stores. As expected,
the finalization of Medicaid reimbursement rate reduction had a
positive impact on the company's pharmacy margins in the second
The company continues to benefit from a strong selling season,
favorable industry dynamics and increasing shareholder value.
Further, the generic wave in the pharmaceutical industry continues
to improve profitability for CVS.
Despite tough pricing competition, CVS is gaining substantially
owing to its 2015 selling season. Gross win for 2015 is pegged at
5.4 billion and has spread across all client segments while net new
business stands at 2.6 billion. This net new number includes
business lost through acquisition, which makes up more than 60% of
the lost business. The company has also completed renewal of
approximately 70% of the 26 billion in business up for renewal with
a retention rate of almost 97%.
Specialty revenues rose roughly 53% in the second quarter on the
back of drug price inflation, utilization, new product launches and
new client wins. According to the company, clients specialty now
represents about 22.5% of total drug spend and is expected to grow
at a mid-teens rate and reach 50% by 2018.
However, the company is facing higher costs associated with its
Medicare Part D business that might hamper operating profit within
the PBM franchise. The somber macroeconomic condition also adds to
The stock currently carries a Zacks Rank #3 (Hold).
Key Picks from the Sector
Some better-ranked stocks in the broader healthcare industry
include Abaxis, Inc. (
), Medtronic, Inc. (
) and NuVasive, Inc. (
). All the three stocks carry a Zacks Rank #2 (Buy).
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CVS CAREMARK CP (CVS): Free Stock Analysis
MEDTRONIC (MDT): Free Stock Analysis Report
ABAXIS INC (ABAX): Free Stock Analysis Report
NUVASIVE INC (NUVA): Free Stock Analysis Report
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