"CVS Caremark (NYSE: CVS), the nation's largest U.S. drugstore chain, remains a buy in our model growth portfolio," says Stephen Leeb.
In his The Complete Investor, he explains, "Business at CVS has been resilient. In the second quarter, revenue growth was up 22% for its pharmacy benefits management (PBM) business and 17% for retail operations.
"Total sales, almost evenly divided between the two segments, rose 18% to $24.9 billion. Earnings of $886.5 million, or 60 cents a share, were 13% higher than in the year-earlier period and beat consensus estimates by a penny.
"Caremark, the company's PBM business, negotiated lower rates, helping it retain and add clients. It also benefited from its popular 'Maintenance Choice' program, which lets members pick up 90-day orders at drugstores at lower mail-order prices.
"Not only does this foster customer loyalty, it also boosts in-store sales as customers who come for medications buy other items as well. In the most recent quarter, same-store sales for locations open at least a year rose 6.1%.
"For the full year, management raised guidance to $2.59-$2.64 per share, up from previous estimates of $2.55-$2.63. Revenues are projected to grow by around 20% in the third quarter, and CEO Tom Ryan has indicated he'd be disappointed in earnings growth below 13 to 15 percent in 2010.
"Demographics strongly favor the company, as the growing ranks of elderly Americans will mean more prescriptions to be filled.
"CVS should command a premium valuation, yet shares trade under 12 times next year's projected earnings, for a PEG below 1. We continue to recommend the shares of this exceptional domestic company."
Steven Halpern's TheStockAdvisors.com offers a free daily overview of the favorite stock picks and investment ideas from the nation's leading financial newsletter advisors.
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Reader Comments (Page 1 of 1)
9-11-2009 @ 6:21AM
al coholic said...
Saturation seems like a problem to me.
Here in Greenville, SC you can't swing a dead cat without hitting the walls of a CVS store. They are sometimes within shouting distance of each other. Incredibly, within the last couple of years, on the opposite corner from nearly every one of them a new Walgreens or Rite-Aid was built. Of course there are a bunch of nearly brand new Rite-Aid stores closed this year but it amazes me how much money was spent on the real estate for all these stores. They were all built on prime, expensive commercial properties.
There was talk that the increasing Rx needs of retiring boomers justified these huge investments but it just seems like a huge amount of oversupply of stores to me.
I just assumed that the whole thing was a giant play on real estate since these stores cannibalise each other so badly. Now that commercial real estate is headed for the toilet like everything else I wonder how all these stores will stay open?