WOONSOCKET – CVS Caremark Corp. looks undervalued when compared to rival pharmacy companies based on the strength of its retail and pharmacy-benefit management businesses, according to Barron’s Magazine.
“CVS Caremark doesn’t get any respect from Wall Street these days,” Barron’s reporter Lawrence C. Strauss writes in the influential investment journal’s current edition. CVS (NYSE: CVS) closed at $35.94 on Monday in composite trading on the New York Stock Exchange.
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Although CVS’s stock has bounced back from the mid-20s it sank to in March, Peter Langerman, co-portfolio manager of the Mutual Shares Fund, which owns CVS shares, argued it remains undervalued when compared to competitors such as Walgreen Co., Medco Health Solutions Inc. and Express Scripts Inc.
“Not a lot has to go right here for this to be a 40-plus stock,” Langerman told Barron’s. “Put a 15 [price-earnings] multiple on it, and you are well into the 40s.”
One reason for Langerman’s and others’ bullishness is the higher margins CVS earns when it sells generic drugs, more of which are expected to come on the market starting in the second half of this year, including big-sellers like Lipitor and Plavix, Barron’s said.
On the other hand, Caremark has recently lost some large pharmacy benefit management contracts, including a $2 billion agreement with the Federal Employees Mail Plan and a $400 million Chrysler UAW plan. Helene Wolk, a Sanford C. Bernstein analyst, estimates Caremark’s market share this year at 17.5 percent, behind Medco’s 17.8 percent, but says CVS is on track to gain more.
CVS and Caremark merged in 2007. Dave Rickard, the company’s chief financial officer, told Barron’s that combining operations has led to $700 million in annual savings, mostly because the company has more leverage when negotiating with drugmakers.
Barron’s Magazine is published by Dow Jones & Co., a division of News Corp.
