Stock (Symbol) |
CVS Caremark (CVS) |
Stock Price |
$94 |
Sector |
| Food & Necessities |
Data is as of |
| June 30, 2016 |
Expected to Report |
| Aug 2 |
Company Description |
 CVS operates through three business segments: Pharmacy Services, Retail Pharmacy and Corporate. The Pharmacy Services provides a range of pharmacy benefit management (PBM) services and operates under the CVS/caremark Pharmacy Services, Novologix and Navarro Health Services names. The Retail Pharmacy sells prescription drugs and an assortment of general merchandise, including over-the-counter drugs, beauty products and cosmetics, personal care products, convenience foods, photo finishing, seasonal merchandise and greeting cards through the Company’s retail stores, online retail pharmacy Websites and retail healthcare clinics. The Corporate provides management and administrative services to support the overall operations of the Company. The Company, through its wholly owned subsidiary, Omnicare, Inc., provides pharmacy services to long-term care facilities. Source: Thomson Financial |
Sharek’s Take |
 CVS Caremark (CVS) has been underperforming lately as OptumRX has been taking customers from CVS’s Caremark pharmacy benefit management (PBM) division Caremark. It has been a given for really a decade or more that Caremark was the best in the PBM business (in my biased opinion anyway as I owned Caremark way-back-when it was a steady 20% grower). But recently UnitedHealth’s OptumRX PBM took the GE business away from Caremark and this shook up the industry as OptumRx had previously been a player in either government contracts or those where the employer also used UnitedHealth as a health insurer. Now the game has changed, and Caremark needs to step up. Other than that everything is good with both retail and PBM business growing around 20% last qtr. Same store sales grew a respectable 4%. CVS has grown profits every year since 2002. Management is savvy and buys back stock in addition to making smart acquisitions. In 2007 CVS acquired Caremark, a pharmacy benefit manager (PBM) and in May 2015 acquired Omnicare, a PBM for seniors. One month later it purchased Target’s pharmacy business of 1600 drugstores. The company promotes a healthy lifestyle brand by featuring fresh fruit and other healthy snacks while eliminating cigarettes. This stock has an estimated long-term growth rate of 15% a year, in addition to a yield of 2% and sells for 16 times earnings. CVS is a solid value here for conservative investors, but growth investors might want to have a wandering eye as faster growing companies are now starting to outperform. |
One Year Chart |
 This is not a good-looking chart. The stock’s kind of dead in the water. The 4% profit growth the company had last qtr wasn’t a surprise as this estimate was lowered a couple qtrs back and didn’t faze investors. But next qtr’s 7% growth is bad because analysts had expected 11% and management just lowered guidance (maybe because of the PBM business). Still, annual estimates stayed consistent with last qtr’s and after next qtr the qtrly profit estimates are for 21%, 18% and 14% the following qtrs. |
Fair Value |
 This stock is a value at 16x earnings, but it was a better value back in 2009-2012 when the P/E was between 12 and 13. Wish I would have bought it back then (I bought it last year, when the P/E was high). This stock has good upside here and investors get to collect a nice dividend while they wait. |
Bottom Line |
 CVS stock seems to be taking a breather right now. There’s two reasons for this. First there’s solid competition in the PBM business and second investors are looking at faster growing growth stocks right now. Still, this is a safe buy-and-hold stock for both conservative and growth investors. The P/E of 16 makes this a solid value. CVS ranks 36th of 39 stocks in the Growth Portfolio Power Rankings and 30th of 38 stocks in the Conservative Portfolio Power Rankings. |
Power Rankings |
Growth Stock Portfolio
36 of 39Aggressive Growth Portfolio N/AConservative Stock Portfolio 30 of 38 |
