Update CVS Caremark (CVS) in my Jubak's Picks portfolio

05/02/2012 3:45 pm EST


Jim Jubak

Founder and Editor, JubakPicks.com

CVS Caremark (CVS) reported earnings this morning for the company’s first quarter of 65 cents a share, 2 cents a share above the Wall Street consensus. The company also reported a 19.9% year-to-year increase in revenue to $30.8 billion. That analyst consensus called for $30.29 billion in revenue.

More importantly in the current profit-taking-prone market the company raised guidance for the second quarter to earnings per share of 78 cents to 80 cents versus the current 74 cents a share analyst estimate. For all of 2012 the company forecast earnings of $3.23 to $3.33 a share. That’s a big increase from prior guidance of $3.18 to $3.28 a share. The Wall Street consensus was $3.29 a share for 2012.

On the higher guidance I’m raising my target price for these shares to $53 a share from my previous target of $48 by October. (CVS Caremark is a member of my Jubak’s Picks 12-18 month portfolio http://jubakpicks.com/ )

The shares are up 2.7% to $45.91 as of 3 p.m. New York time today.

So where did the extra earnings (and the improved guidance) come from?

CVS Caremark’s pharmacy-benefits-management unit continues to pick up business from Walgreen (WAG) as a result of that company’s contact dispute with pharmacy-benefits manager Express Scripts Holding (ESRX). In the second quarter CVS Caremark expects to pick up another 3 cents to 4 cents a share from that dispute. In the first quarter revenue at that unit grew by 32% to $18.3 billion.

At the company’s retail drug store unit, revenue climbed by 9.9% to $16 billion. Same store sales were up by 8.4% from the first quarter of 2011. Same store sales would have climbed even more except for higher sales of recently introduced generics with lower prices.

The company’s newest business, its in-store MinuteClinic health-care centers, grew revenue by 22% in the quarter.

In the quarter CVS Caremark generated $2.4 billion in free cash flow. The shares pay a dividend of 1.4%.

Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund http://jubakfund.com/ , may or may not now own positions in any stock mentioned in this post. The fund did own shares of CVS Caremark as of the end of December. For a full list of the stocks in the fund as of the end of December see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/
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