CVS Caremark Corp. is poised to grow in both its drugstore business and its pharmacy benefits management side in the second half of 2012, according to BMO Capital analyst Dave Shove.
The Woonsocket, R.I., company said Tuesday its second-quarter earnings jumped more than 18 percent, revenue rose 16 percent, and it raised its 2012 net income forecast. CVS Caremark operates the second-largest drugstore chain in the United States, after Walgreen, and one of the nation's largest pharmacy benefits management, or PBM, businesses.
The company said a split between rival drugstore chain Walgreen Co. and the nation's largest pharmacy benefits manager, Express Scripts Holding Co., added between 6.5 million and 7 million prescriptions to CVS pharmacies in the quarter. Walgreen used to fill prescriptions for Express Scripts, and the companies reached a deal last month to resume doing business in September.
Even so, CVS says it expects to keep many of the Walgreen customers that migrated to its stores due to the split. Shove agrees. He said in a Tuesday morning research note the CVS customer loyalty program gives the company "an array of tools to reach and keep the former (Walgreen) shopper."
Shove raised his rating on the stock to "Outperform" from "Market Perform." He noted that the stock is currently trading at a relatively low price-to-earnings ratio when compared with projected 2013 earnings, and expectations for the company have been "needlessly wounded" by the resolution of the Express Scripts-Walgreen dispute.
"We believe investors should use the current valuation as an entry point," Shove wrote.
Company shares climbed 13 cents to $44.25 Wednesday before markets opened.