CVS Caremark (CVS) is a leading retailer of prescribed drugs that runs a much bigger business, ranging from the management of pharmacy benefit plans to the operation of medical clinics. The Rhode Island company probably is best-known for its familiar chain of more than 7,000 retail stores with built-in pharmacies across the country. Less visible is its sizable role in helping employers, labor unions, and other sponsors of group medical insurance manage pharmacy benefit plans.
CVS also is a certified seller under the federal government's Medicare Part D prescription drug benefit. In addition, the company operates in-store clinics for treatment of minor medical ailments at more than 500 of its drugstore locations.
The aging of America is steady trend that favors CVS drugstores and the company's mail-order business and its retail operation online. In comparison, pharmacy benefit management (PBM) on behalf of employers and other medical plan sponsors can be volatile.
Net revenues fell to $96.4 billion in 2010 from $98.72 billion in 2009, due in part to the fourth-quarter termination of several large PBM contracts. Net income went along for the ride down, falling to $3.42 billion in 2010 from $3.69 billion in 2009.
This year began better on the top line, less so on the bottom line. Net revenues grew to $25.88 billion in the first quarter from $23.76 billion in same period last year. First-quarter net income fell to $712 million from $770 million last year, largely because of a $104 million increase in operating expenses during the January to March period.
In early June, a majority of the stock analysts covering CVS recommended buying the stock. The rest had neutral ratings. One minority opinion holder was Zacks Investment Research, which reiterated its neutral rating on CVS stock June 1. Zacks reported concern about profit margin compression due to competitive pressure: "Despite implementing diverse strategies to expand its business, CVS continues to face margin pressure," its analysts wrote.
In guidance to investors on May 5, CVS forecast that its earnings per share from continuing operations will range this year from $2.52 to $2.62, compared with $2.50 in 2010 and $2.56 in 2009.
"I remain confident in our ability to execute our operating plans and improve the performance of our PBM (pharmacy benefits management) for 2012 and beyond," Larry Merlo, president and chief executive officer of CVS, said in a prepared statement within the company's first-quarter earnings report.
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