Drug Store Bulls Plod Along with CVS in Tow

CVS Caremark (NYSE:CVS) enjoyed a boost on Wednesday morning following its fourth-quarter and full-year 2012 results. For the quarter, the pharmacy and health-care services provider reported a 10.9 percent increase in net revenues to a record $31.4 billion, same-store sales growth of 4.0 percent, and a 22.8 percent increase in adjusted earnings to $0.97 per diluted share, which includes a $0.17 per share loss attributed to early extinguishment of debt.

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The strong quarter was led by a 17.4 percent increase in Pharmacy Services revenues to $18.6 billion. CVS commented that “this increase was primarily associated with new 2012 client starts, drug cost inflation and the growth of our Medicare Part D program.”

Quarter Dec. 31, 2011 Mar. 31, 2012 Jun. 30, 2012 Sep. 30, 2012 Dec. 31, 2012
Revenue ($) in millions 28,320 30,800 30,710 30,230 31,400
Diluted EPS ($) 0.80 0.59 0.75 0.79 0.97

The company’s fourth-quarter results rounded out a strong year, and CVS offered healthy guidance for 2013…

Full-year net revenue increased 15.0 percent to a record $123.1 billion, with Pharmacy Services up 24.7 percent. Retail Pharmacy revenues grew 6.8 percent on the back of 5.5 percent same-store sales growth. Full-year operating profit increased 14.2 percent to a record $7.2 billion, with adjusted earnings coming in at $3.27 per diluted share. GAAP earnings were $3.03 per diluted share, a 17.9 percent year-over-year increase.

Fiscal Year 2009 2010 2011 2012 2013
Revenue ($) in millions 98,220 95,780 107,100 123,100 124,920*
Diluted EPS ($) 2.55 2.49 2.57 3.03 3.61 – 3.75**

*Mean analyst estimate **CVS guidance

Analysts are a little more bullish on the company’s 2013 earnings prospects than the company itself (no surprises here), with an average estimate of $3.94 per share for the year.

Now that all the major drug stores have reported their year-end earnings, we can do a quick side-by-side and get a snapshot of what the players look like heading into 2013…

Investors received year-end results from both Rite Aid (NYSE:RAD) and Walgreen (NYSE:WAG) with mixed sentiment, but movement on the stock chart has been positive. For the first quarter of its fiscal 2013, Walgreen reported an 18.3 percent decrease in earnings to $0.58 per diluted share, missing expectations for $0.70 per share. Rite Aid reported earnings of $0.07 per share, beating estimates for a loss of $0.03 per share.

So far this year, CVS has lagged its drug store competitors on the stock chart. However, given its strong fundamentals and growth record, analysts are by far the most bullish on CVS, with a heavy majority rating it a “Buy,” and setting a price target of $56.55 per share, 9.3 percent above its closing price on Tuesday.

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