PBN Staff and Bloomberg News
CVS is reported to be a “better-than-even” bidder for pieces of the Eckerd pharmacy chain, which its parent company, J.C. Penney, is looking to sell.
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Woonsocket-based CVS teamed up with buyout firm Kohlberg Kravis Roberts in October to bid for the pharmacy chain that J.C. Penney has been looking to shed for a year.
Lisa Cartwright, an analyst at Citigroup Smith-Barney, said CVS’ position in the bidding gives her confidence in upgrading CVS’ stock in 2004.
CVS spokesman Todd Andrews said his company called this “speculation” and would not comment on the situation.
Derek Leckow, an analyst with Chicago-based Barrington Research Associates, said Florida is a strategic location where Eckerd has a presence. CVS is dominant there, he said, but there are high-traffic locations where Eckerd is located.
“CVS is well-known in the Northeast,” Leckow said. “As that population gets older and retirees move to places like Florida, CVS will continue to have brand recognition.”
Although he says any Eckerd deal CVS inks would be beneficial, Leckow is more optimistic about the chain’s expansion plans in the next year. Those plans include adding enough new stores to increase CVS’ total square-footage by 4 percent.
“I’m not too excited about (the Eckerd bid) because when you acquire new stores you also take on their problems,” he said. “CVS will gain a lot more by building its own stores.”
The Canadian pharmacy chain Jean Couti Group Inc. has joined with buyout firm Blackstone Group LLP in the bidding process for Eckerd.
J.C. Penney, the second-largest department store chain, is looking to sell the Eckerd chain as it also looks to place focus back on reviving sales at the department stores. Sales at Eckerd, which J.C. Penney purchased in 1996 for $3.3 billion, were hurt by declining sales of non-pharmacy items as locations open at least a year fell 1 percent in the third quarter.
J.C. Penney will announce in January whether they will accept a bid or retain the pharmacy chain.
Cartwright said the Eckerd deal is a factor in her prediction that CVS’ stock will rise from the $37 range.
“As we expect CVS to continue to (also) take share and we have seen continued productivity gains … we reiterate our $42 price target,” she said in December.
CVS reported recently that its 2004 profits are expected to increase to as much as $2.18 a share amid rising sales and cost reductions. That figure is up from 2003’s projected profit $1.95 to $2 a share.
The retailer also said it plans to roll out between 100 to 125 new stores in 2004 to better compete with the nation’s largest drugstore chain, Walgreens.
Leckow predicts that this number is closer to 200 to 250 given the 4 percent increase in square-footage.
