CVS Caremark (CVS)
By J. Royden Ward, Chief Analyst, Cabot Benjamin Graham Value Investor
From Cabot Wealth Advisory 7-21-16 Sign up for Cabot Wealth Advisory—it’s free!
One company that currently fits my screening criteria for undervalued stocks with low volatility and high quality is CVS Health (CVS).
CVS Health (CVS: Current Price 97.00) is the leading pharmacy and drug management services chain in the U.S. During the past several years, the company has made several major acquisitions which have enhanced CVS’s growth beyond expectations. The company’s latest acquisition of pharmacy services manager Omnicare is producing better than expected sales and earnings results. CVS will likely continue its aggressive acquisition strategy in future years.
I expect sales to advance 14% and EPS (earnings per share) to climb 19% to 6.18 in the next 12 months ending June 30, 2017. New drugs from drug makers and the wider use of generic drugs will keep earnings growing rapidly well into the future. Recent acquisitions will add noticeable sales and earnings growth in 2016 and 2017.
Recent acquisitions, including Omnicare and the healthcare clinics of retail giant Target, will provide a big boost to sales. CVS will convert all of Target pharmacies to the CVS Pharmacy brand by the end of the summer. The company will launch a major marketing program soon after.
CVS has increased its dividend more than 10% every year during the past decade at a compound growth rate of 24% per year. The most recent 20% hike in December boosts the current yield to 1.8%. Despite all the hikes, the company only pays out 32% of EPS to shareholders. The company has been paying dividends since 1916.
CVS shares have dropped 15% from the stock’s 52-week high, and are now undervalued at 18.7 times latest EPS. Additional acquisitions could push sales and earnings higher than expected. The company’s balance sheet is strong, and my risk rating for CVS is very low risk. Standard & Poor’s rates the company 5 Stars, 5 for Value and A+ for Quality. CVS’s stock price will very likely reach my sell target within 12 to 18 months. Buy.
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By J. Royden Ward, Editor of Cabot Benjamin Graham Value Letter
From Cabot Wealth Advisory 11/12/12 Sign up for free Cabot Wealth Advisory e-newsletter
CVS Caremark (CVS) is the leading pharmacy and drug management services chain in the U.S. During the past several years, the company has made several major acquisitions that have enhanced CVS's growth beyond expectations. The company's latest purchase of UAM Medicare prescription drug plan business is producing better than expected sales and earnings results. CVS will likely continue its aggressive acquisition strategy in future years.
CVS's in-house Minute Clinics, which are staffed by nurse practitioners and physician assistants, are a big hit. I expect sales to advance 8% and EPS to climb 13% during the next 12 months. New drugs from drug makers and the wider use of generic drugs will keep earnings growing rapidly well into the future.
CVS shares are undervalued at only 12.9 times my EPS forecast of 3.61 for the 12 months ending 9/30/13. Additional acquisitions could push sales and earnings higher than expected. The dividend yield of 1.4% is modest, the balance sheet is strong and my risk rating for CVS is very low risk.
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CVS Caremark (CVS): High quality, undervalued, with low volatilityBy J. Royden Ward, Editor of Cabot Benjamin Graham Value Letter
From Cabot Wealth Advisory 5/24/12 Sign up for free Cabot Wealth Advisory e-newsletter
CVS Caremark (CVS) is the leading drug store chain in the U.S. and one of the largest pharmacy benefit managers. CVS drug stores offer prescription drugs (68% of retail store sales) and a wide assortment of over-the-counter drugs, beauty products, photo finishing services, seasonal merchandise, greeting cards and convenience foods. Pharmacy benefit management offerings include mail order pharmacy service, healthcare plan design and administration, and claims processing.
CVS's in-house Minute Clinics, which are staffed by nurse practitioners and physician assistants, are a big hit. CVS has quickly become the largest retail clinic operator in the U.S. and plans to add another 100 in-store clinics per year during the next several years.
Favorable demographics will result in increased drug sales and a significant increase in pharmacy benefit management revenue. In addition, Walgreen's falling out with a major pharmacy benefit manager (Express Scripts) is providing significant new business for CVS.
Total sales increased 20%, same-store sales climbed 6.8%, and EPS advanced 14% during the quarter ended March 31. The new contract with Aetna and additional market share from Walgreen helped boost sales. Management raised its full-year forecast based on momentum from the first quarter. I forecast solid 11% earnings growth during the next several years at CVS.
CVS shares are undervalued at only 13.6 times forward EPS with a dividend yield of 1.5%. The company ratings include: S&P Stars Rank of 5, S&P Fair Value Rank of 5, S&P Quality Rank of A+, and an S&P Beta Rating of 0.78. CVS operates equally in the Consumer Staple and Health Care sectors. Buy.
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|CVS Caremark Corporation (CVS)
One CVS Drive
Woonsocket, Rhode Island 02895
|Index Membership: N/A
Industry: Drug Stores
Full Time Employees: 202,000
11/12/12 CVS Caremark (CVS): Very low risk
7/21/16 CVS Health (CVS): Undervalued, with low volatility and high quality