Tags: CVS | Walgreens | drugs | prescription | medications | Pharmacies

Tailwinds Rise for CVS and Walgreens

By    |   Monday, 25 Apr 2011 12:15 PM

Spending on drugs continues to climb, with Americans and their insurers shelling out $307.4 billion on prescription medications last year, up 2.3 percent from 2009, according to IMS. Pharmacies, of course, are a major beneficiary of that spending.

In the case of CVS Caremark (CVS) and Walgreen Co. (WAG), the companies sell a range of other items as well. Given their solid revenue streams, investors will want to consider purchasing their stocks.

CVS

Book value per share, one of Warren Buffett’s favorite metrics, gained 11 percent last year for the country’s largest prescription-drug retailer. Free cash flow jumped 86 percent to $2.78 billion. CVS expects earnings per share to total between $2.72 and $2.82 a share this year, up from $2.49 in 2010.

CVS CEO Larry Merlo expressed satisfaction with the results. “Our retail business continued to produce industry-leading same-store sales and achieved an all-time record operating margin,” he said in a statement.

“The PBM (pharmacy benefit management) business made significant progress last year, with a strong 2011 selling season, high client-retention rates, and the introduction of unique products and services.”

Standard & Poor’s analyst Joseph Agnese has a five-star buy rating on the stock. “CVS is well positioned to benefit over the next few years, as favorable demographics result in increased customer drug utilization,” he notes.

Walgreens

The country’s largest drugstore chain saw its profit rise 10 percent in the quarter ended Feb. 28 to $739 million. Sales grew 8.9 percent to $18.5 billion.

Walgreens has a store within three miles of 63 percent of Americans, so its accessibility is nearly unmatched in the industry. It’s no wonder then that the company reported that its share of the in-store prescription market rose to a record high of 20.1 percent in the latest quarter.

The increasing usage of generic drugs benefits Walgreens as they carry much higher profit margins for the company than brand-name drugs. The store has expanded its product offerings to include fresh food and beer.

In the past two months, analysts at both Morgan Stanley and Jefferies have put a $50 target on Walgreens shares, which closed at $42.69 on April 21.

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Spending on drugs continues to climb, with Americans and their insurers shelling out $307.4 billion on prescription medications last year, up 2.3 percent from 2009, according to IMS. Pharmacies, of course, are a major beneficiary of that spending. In the case of CVS...
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2011-15-25
Monday, 25 Apr 2011 12:15 PM
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