"CVS Caremark (NYSE: CVS), the nation's largest U.S. drugstore chain, remains a buy in our model growth portfolio," says Stephen Leeb. Here's the latest from The Complete Investor.
"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."
