On Aug 28, we reiterated our long-term Neutral recommendation
CVS Caremark Corporation
) following healthy second-quarter results. This integrated
pharmacy service provider carries a Zacks Rank #3 (Hold).
Why the Reiteration?
On Aug 6, EPS surged 19.5% to 97 cents, a penny higher than the
Zacks Consensus Estimate. Per management, the improvement was led
by higher profitability on the back of the generic wave in the
pharmaceutical industry. Net revenue increased 1.7% year over
year to $31.25 billion, ahead of the Zacks Consensus Estimate of
$31.19 billion. Top line benefited from higher contributions from
CVS' segments - Pharmacy Services and Retail Pharmacy.
Although the introduction of generic drugs in the pharmaceutical
industry hurt company-wide revenues, it continues to push profits
higher for CVS. Specialty pharmacy represents another high-growth
avenue as specialty revenues grew a robust 19% in the quarter.
Market dynamics and demographic trends also work in CVS' favor.
Furthermore, after a weak first-quarter, the same-store sales and
pharmacy store sales improvement in the second quarter came as an
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
)-Express Scripts impasse has intensified the competitive
landscape and put CVS in a tight spot.
The somber macroeconomic condition adds to our apprehension.
Following the second quarter, CVS narrowed its guidance for 2013
adjusted EPS to the range of $3.90-$3.96 compared with
$3.89-$4.00 earlier. Despite several positive driving events, the
tough competition and company-specific concerns keep us on the
Stocks to Consider
While we have a neutral disposition on CVS, we are positive about
GNC Holdings Inc.
) doing well. The stock carries a Zacks Rank #2 (Buy).
CVS CAREMARK CP (CVS): Free Stock Analysis
EXPRESS SCRIPTS (ESRX): Free Stock Analysis
GNC HOLDINGS (GNC): Free Stock Analysis
WALGREEN CO (WAG): Free Stock Analysis Report
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