CVS Caremark: Updated Research Report - Analyst Blog

On May 29, 2014, we issued an updated research report on CVS Caremark Corporation CVS. The company recently reported a mixed first-quarter 2014 with earnings per share lagging the Zacks Consensus Estimate and revenues coming in higher than expected.

After several quarters of solid progress, CVS Caremark disappointed with its earnings figure of $1.02 which although 22.9% higher on a year-over-year basis, missed the Zacks Consensus Estimate by 3 cents as well as the company-provided guidance range of $1.03 to $1.06 per share.

Per management, earnings failed to meet the guidance because of severe unforeseen weather-related issues that the company experienced through the reported quarter. We are however encouraged with CVS' net revenue that improved 6.3% year over year to $32.69 billion, closely beating the Zacks Consensus Estimate of $32.54 billion.

The company continues to benefit from a strong selling season, favorable industry dynamics and increasing shareholder value. The generic wave in the pharmaceutical industry continues to improve profitability for CVS.

CVS Caremark witnessed robust double-digit growth in PBM (Pharmacy Benefit Manager) on the back of a strong selling season. Considering delay in the transition of some business loss incurred through acquisitions, from 2014 to 2015, client net new business was $3.0 billion in the quarter with the company progressing well with its second half of 2014 client win. The company is also optimistic about its 2015 selling season. Earlier the company had stated that its retail, mail and specialty PBM services to the Federal Employee Health Benefit Program are up for renewal in 2015.

However, the company is facing higher costs associated with its Medicare Part D business that might hamper operating profit within the PBM franchise. The somber macroeconomic condition also adds to our concern.

The stock currently carries a Zacks Rank #3 (Hold).

Key Picks from the Sector

Some better-ranked stocks in the broader healthcare industry include Edwards Lifesciences Corp. EW, Masimo Corporation MASI and Natus Medical Inc. BABY. All the three stocks carry a Zacks Rank #2 (Buy).