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CVS Caremark Touches New High - Analyst Blog

Posted: 3/14/2013 3:13:00 PM
Referenced Stocks: CAH;CVS;RAD;SWY

On Mar 13, 2013, shares of CVS Caremark ( CVS ) touched a new 52-week high of $52.93. The closing price of this integrated pharmacy service provider was $52.90, which represented a decent year-to-date return of 9.9%.

With a history of posting either in line or higher quarterly earnings, the stock presently carries a Zacks Rank #2 (Buy) and offers an attractive investment opportunity going forward.

Stock Drivers

The company's bright prospects for 2013 on the heels of solid earnings forecast, stronger balance sheet, favorable selling season and positive industry dynamics are driving the stock.

CVS envisages adjusted earnings per share of $3.86 − $4.00 for 2013. The Zacks Consensus Estimate of $3.94 (reflecting a year-over-year growth of 14.45%) lies within the guidance range.

The company anticipates 2013 free cash flow and cash flow from operations to be in the range of $4.8 - $5.1 billion and $6.4 - $6.6 billion, respectively. The guidance includes the completion of the accelerated share repurchase agreement worth $4 billion. Strong cash flow enabled CVS to consistently return value to shareholders. Management plans to achieve a payout ratio of 25% by the end of 2013 (earlier target was 2015). Given this backdrop, the stock should appeal to income investors.

At the same time, CVS is highly optimistic about the 2013 selling season and shifted spotlight to 2014 selling season. Thus far, the company is perfectly on track to continue its growth momentum.  

On the domestic front, demographic trends, healthcare reforms in the U.S., and the generic wave in the pharmaceutical industry are expected to catalyze growth for the company. In the light of these trends, CVS expects accelerating adoption of its programs such as Maintenance Choice, Pharmacy Advisor and ExtraCare loyalty program, along with expansion of its MinuteClinics.   

The estimate revision trend also reflects a bullish sentiment towards CVS for 2013. Drug retailers Rite Aid Corporation ( RAD ) and Safeway ( SWY ), carrying a Zacks Rank #1(Strong Buy) are also expected to do well. Another healthcare stock that warrants a look is Cardinal Health ( CAH ) that carries a Zacks Rank #2.

CARDINAL HEALTH (CAH): Free Stock Analysis Report

CVS CAREMARK CP (CVS): Free Stock Analysis Report

RITE AID CORP (RAD): Free Stock Analysis Report

SAFEWAY INC (SWY): Free Stock Analysis Report

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