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You Can Count on CVS

Stock (Symbol)

CVS Caremark (CVS)

Stock Price

$99

Sector
Food & Necessities
Data is as of
December 28, 2015
Expected to Report
Feb 9
Company Description
cvscaremark_pharmacistCVS 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
David SharekCVS Caremark (CVS) is a pharmacy that’s built a healthy lifestyle brand by featuring fresh fruit and other healthy snacks while eliminating cigarettes. But what’s pushing CVS’s profit growth is its acquisitions. In 2007 CVS acquired Caremark, a pharmacy benefit manager (PBM) and a stock I owned. Caremark was a 20% grower at the time, and this buy got the company into the PBM business and also pushed up CVS’s profit growth rate. Last May CVS acquired Omnicare, a PBM for seniors, and in June Target’s pharmacy business of 1600 drugstores. Both these recent deals will boost profits, which have increased every year since 2002. CVS is a safe stock, earning Value Line’s top safety rating of 1, while also yielding 1.8%. Combining the estimated long-term growth rate of 14% with a 2% dividend gets a possible 16% total annual return. And with the market down this past week, CVS is now $94, selling for just 16x earnings. I feel the stock is at its lows and is an excellent investment for conservative accounts. You can count on CVS.
One Year Chart
CVS_2015_Q4These tables and charts are as of December 28th. CVS was $99 at the time, and closed at $94 yesterday. The stock market has had a wicked decline this year, many stocks are down 10% or more. CVS is down half that.  Profits look to grow 26%, 4%, 11% and 20% the next 4 qtrs.
Fair Value
CVS_2015_Q4_PHWhen I looked at this stock last year the P/E was a little high at 21. During the past decade the median P/E has been between 13 and 19. At $94, CVS sells for 16x earnings. That’s cheap. I’m thinking the stock could be finding a bottom here. My Fair Value is $105, which gives the stock 12% upside to its Fair Value and you get a dividend while you wait.
Bottom Line
CVS_2015_Q4_10yrCVS is a company — and a stock — you can count on. When times get tough, pharmacies are usually safe havens for investors. This conservative stock gets a top safety rating and also gives investors a yield of almost 2%. CVS has grown profits 14% a year the past decade, and analysts see that continuing the next five years. Hypothetically, a 14% grower with a 2% dividend could get investors 16% annual returns. And for 16x earnings the stock is undervalued. CVS ranks just 25th of 35 stocks in the Growth Portfolio Power Rankings as the growth rate isn’t that great. The stock is a better fit for the Conservative Portfolio, where it ranks 15th of 31 stocks in the Power Rankings.
Power Rankings
Growth Stock Portfolio

25 of 38

Aggressive Growth Portfolio

N/A

Conservative Stock Portfolio

15 of 31

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