Drugstore giant CVS says it fills one of every eight retail prescriptions in the U.S. And Edward Kelly, an analyst at Credit Suisse, says the chain is filling its own prescription for success by making smart acquisitions, generating solid sales growth and bolstering its competitive advantages. The investment firm added the stock to its "focus list" on Wednesday.
CVS, which generates 70% of sales from prescription drugs, should benefit enormously from an aging population and increasing use of pharmaceuticals. As the largest drugstore chain in the country by store count (more than 5,400 at last word), the Woonsocket, R.I., company is in a strong competitive position. Its sheer size and economies of scale should enable CVS to make life difficult for smaller rivals.
CVS has been expanding through acquisitions. The Eckerd stores it acquired in 2004 represent a significant -- and underappreciated -- opportunity to boost earnings, in Kelly's view. CVS agreed earlier this year to purchase about 700 Sav-on and Osco stores from Albertsons, boosting its presence in southern California. Both deals, Kelly says, contribute to a robust earnings outlook.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
In addition to operating the stores, CVS boasts a large pharmacy benefit management business. Businesses enlist PharmaCare to help provide drug coverage to insurance-plan participants. This subsidiary won a contract this week to provide mail-order, specialty-pharmacy and other services to certain employees of automaker DaimlerChrysler. Kelly says winning the contract is a defining moment for CVS because it bestows credibility on the benefit management business and sets the stage for additional wins.
The stock (symbol CVS) gained 4% on Wednesday. At $30, it trades at 19 times analysts' average earnings estimates for 2006 of $1.57 per share, according to Thomson First Call. That's an attractive price according to Kelly's analysis. He thinks the shares can rise to $35 over the next 12 months.
--Lisa Dixon
-
To Future-Proof Retirement Security, We Need Better StrategiesWith retirees living longer and the inequalities that affect women and people of color, the retirement system needs some optimization. Here’s what would help.
-
Here's Why We All Win When Charitable Dollars Go to WomenGiving to charities for women and girls not only has a lasting impact on their lives — it also benefits society as a whole. Here’s how to start investing.
-
Why Is Warren Buffett Selling So Much Stock?Berkshire Hathaway is dumping equities, hoarding cash and making market participants nervous.
-
Fed Cuts Rates Again: What the Experts Are SayingFederal Reserve The central bank continued to ease, but a new administration in Washington clouds the outlook for future policy moves.
-
If You'd Put $1,000 Into Google Stock 20 Years Ago, Here's What You'd Have TodayGoogle parent Alphabet has been a market-beating machine for ages.
-
Stock Market Today: Stocks Rally on Strong Netflix EarningsMega-cap tech leads the charge as markets rise for a sixth straight week.
-
CVS Stock Falls After Karen Lynch Ouster: What to KnowCVS stock is lower Friday after the embattled healthcare company said Karen Lynch is out as CEO, effective immediately
-
Stock Market Today: Stocks Drop, Oil Spikes After Iran Attacks IsraelA massive port strike and dismal economic data also weighed on the main indexes Tuesday.
-
Is CVS Health About to Break Up? Here's What We Know
CVS Health stock is lower Tuesday on reports the healthcare company is conducting a strategic review of its operations, which includes a potential breakup.
-
Stock Market Today: Stocks Gain After Powell Talks Rate CutsA late-day burst of buying power helped the main indexes close higher for the day, month and quarter.
