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Stock of the Day
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CVS Caremark (CVS)
CVS Investors Pained by its Weak Pharmacy Benefits Division
CVS Caremark Corp. is a company that wears many different hats. The company runs a network of over 7,000 CVS drugstores, maintains pharmacy locations within those drugstores, and now also owns a pharmacy benefits company (Caremark). Although these businesses are very closely related, the acquisition of Caremark was questioned by many investors. Investors saw this as a risky move which might help the company, but one which might also cause more pain than it was worth. This quarter, as it has been with every quarter since the acquisition, investors and analysts waited to see if the results would help them determine if this was indeed a good decision or not. And based on the response of the investors after the earnings announcement, they got a very clear answer.
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| Daily Chart |
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| Stock Analysis |
If you asked the analysts, CVS posted a strong third quarter report, beating analysts' expectations. Profit rose 39%, jumping from 50 cents to 71 cents per share, while analysts had been expecting 64 cents per share. Revenue also rose, from $20.86 billion to $24.64 billion, just beating the estimates of $24.61 billion. Revenue from the drugstore division rose almost 18%, and revenue from the pharmacy benefits division rose over 23%. Looking a little closer, same-store retail sales rose 5.7%, with same-store pharmacy sales rising 8%, which combined with the other numbers paint a rosy picture for CVS Caremark.
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However, the investors have looked beyond the expectations and the profits, and focused more on the future. CVS CEO Tom Ryan reported that Caremark lost $2 billion in business in the last couple months and approximately $4.5 billion in contract losses for 2010, losing contracts to people who are also eligible for Medicare or Medicaid. Ryan reported that although the client retention rate was a strong 92%, that Caremark had lost a number of important clients. Ryan had previously remarked a strong hope that CVS would experience a 13 to 15% profit increase next year, which he has now reported to be an unlikely possibility, as a hopefully strong retail number will have to balance out a possibly weak benefits number.
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It is clear that for CVS Caremark investors, the latter data is what they are focusing on. Before the announcement, CVS shares were up 18% over the last year. However, since the market has opened today, the company's stock has fallen over 20%. If things don't turn around, and Caremark continues to drag CVS down, investors will grow increasingly frustrated with the acquisition, and this could become a virus attacking this otherwise healthy company, which CVS must figure out how to either treat, or remove completely.
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CVS Commentary:
CVS Caremark 3Q Net Jumps 39% On Revenue Gains - A close look at the earnings report, and an analysis of why investors reacted the way they did.
CVS cuts short flu-shot clinics due to shortages - An early report which indicated CVS may have trouble finding enough flu vaccines to meet demand.
CVS to move subsidiary headquarters to R.I. - CVS also confirmed yesterday a change in headquarters for the MinuteClinic division, which will result in about 150 layoffs.
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More Stocks in the News:
Toyota Joins Ford By Turning A Profit - Investors are stunned as Toyota (TM: Charts, News, Offers) becomes the second major auto manufacturer to post an unexpected profit .
Cisco's Chambers: 'Very Tangible Results' on Recovery - After reporting a disappointing earnings report yesterday, Cisco's (CSCO: Charts, News, Offers) CEO comments on the future of the company and the technology sector.
New York sues Intel over bullying, bribes - Intel (INTC: Charts, News, Offers) faces trouble again, this time being sued for its alleged illegal techniques to get computer manufacturers to use their chips.
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Profile |
Click here to view a detailed profile of CVS Caremark.
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