Q2 Preview: CVS (CVS) Looking to PBM to Continue Strong Results
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Price: $93.02 -0.67%
Rating Summary:
34 Buy, 5 Hold, 0 Sell
Rating Trend:
Up
Today's Overall Ratings:
Up: 8 | Down: 5 | New: 26
Rating Summary:
34 Buy, 5 Hold, 0 Sell
Rating Trend:
Up
Today's Overall Ratings:
Up: 8 | Down: 5 | New: 26
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CVS Caremark (NYSE: CVS) shares are trading lower Wednesday afternoon ahead of its second-quarter earnings report.
Due out before the bell rings Thursday morning, CVS should report earnings of 64 cents per share on revenue of $26.76 billion. Earnings would be a 12 percent sequential gain, though it would be a slight drop from 64 cents per share reported in the same period last year.
Competitor Walgreen (NYSE: WAG) reported a second-quarter beat in June on the top and bottom lines. Walgreen said same-store sales grew 4.1 percent in the period.
CVS gained nearly 10 percent in the quarter and is up 3.9 percent since. The stock is up 4.5 percent on the year. CVS has traded in a range of $26.84 to $39.50 over the last 52 weeks.
Data from Bloomberg has 19 analysts with a Buy rating on CVS, eight at Hold, and none suggesting to Sell. The price target average is $42.70, with a low of $36 and high of $50.
Analyst Commentary
JPMorgan sees earnings of 64 cents per share. The firm expects a positive tone from CVS for its PBM business given recent success on the new business. JPMorgan comments: "However, the company is also projecting PBM operating profit to decline by 5-9% in 2011. Key drivers of the decline include the repricing related to the oneyear renewal of the FEP retail contract (which cycles in September 2011) coupled with PBM streamlining initiatives and lower profitability on existing business."
Conversely, Goldman recently released a note following the Express Scripts (Nasdaq: ESRX) and MedcoHealth Solutions (NYSE: MHS) merger. The firm sees an overall negative impact on CVS's PBM business, saying "ultimately, facing a competitor that can extract more buying power from vendors – i.e., big pharma, generics players, and distributors – could drive pricing lower, as scale and cost synergies could enable he combined ESRX/MHS to compete more aggressively. In fairness, CVS extracted buying leverage vs. retail AND PBM peers in 2007 when it bought Caremark, and competitors were able to do just fine in the interim – many of them better than CVS for periods of time."
Positives from the deal include the fact that Express Scripts and Medco tried to compete with CVS on different types of contracts, meaning there may not be too much difference moving forward. Also, Express Scripts and Medco may have to cope with divestitures or restrictions on its business that would aid Caremark in the short run. The combined entity will be focused on integration, a reasonable task for their strong management teams, but one which can only improve Caremark’s standing in the short-run.
Stay tuned to StreetInsider.com's EPS Insider section to see our analysis of the highly-anticipated quarterly results within seconds of their release.
Due out before the bell rings Thursday morning, CVS should report earnings of 64 cents per share on revenue of $26.76 billion. Earnings would be a 12 percent sequential gain, though it would be a slight drop from 64 cents per share reported in the same period last year.
Competitor Walgreen (NYSE: WAG) reported a second-quarter beat in June on the top and bottom lines. Walgreen said same-store sales grew 4.1 percent in the period.
CVS gained nearly 10 percent in the quarter and is up 3.9 percent since. The stock is up 4.5 percent on the year. CVS has traded in a range of $26.84 to $39.50 over the last 52 weeks.
Data from Bloomberg has 19 analysts with a Buy rating on CVS, eight at Hold, and none suggesting to Sell. The price target average is $42.70, with a low of $36 and high of $50.
Analyst Commentary
JPMorgan sees earnings of 64 cents per share. The firm expects a positive tone from CVS for its PBM business given recent success on the new business. JPMorgan comments: "However, the company is also projecting PBM operating profit to decline by 5-9% in 2011. Key drivers of the decline include the repricing related to the oneyear renewal of the FEP retail contract (which cycles in September 2011) coupled with PBM streamlining initiatives and lower profitability on existing business."
Conversely, Goldman recently released a note following the Express Scripts (Nasdaq: ESRX) and MedcoHealth Solutions (NYSE: MHS) merger. The firm sees an overall negative impact on CVS's PBM business, saying "ultimately, facing a competitor that can extract more buying power from vendors – i.e., big pharma, generics players, and distributors – could drive pricing lower, as scale and cost synergies could enable he combined ESRX/MHS to compete more aggressively. In fairness, CVS extracted buying leverage vs. retail AND PBM peers in 2007 when it bought Caremark, and competitors were able to do just fine in the interim – many of them better than CVS for periods of time."
Positives from the deal include the fact that Express Scripts and Medco tried to compete with CVS on different types of contracts, meaning there may not be too much difference moving forward. Also, Express Scripts and Medco may have to cope with divestitures or restrictions on its business that would aid Caremark in the short run. The combined entity will be focused on integration, a reasonable task for their strong management teams, but one which can only improve Caremark’s standing in the short-run.
Stay tuned to StreetInsider.com's EPS Insider section to see our analysis of the highly-anticipated quarterly results within seconds of their release.
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