CVS, Walgreen stand to grow with generics

Profit at CVS Caremark Corp. and Walgreen Co., the largest U.S. pharmacy chains, may rise at least 20 percent starting next year as branded drugs with more than $100 billion in sales become available as generics, Bloomberg News reported last week.
The record arrival of generic drugs, which can be twice as profitable for pharmacies as branded products, will bring an earnings “windfall” to CVS and Walgreen from 2011 through 2013, said Derek Taner, who manages the $1 billion Invesco Aim Global Health Care Fund from Houston. Drugs losing patent protection include the world’s two best sellers, Pfizer Inc.’s cholesterol pill Lipitor and the blood thinner Plavix.
The cycle isn’t fully accounted for in analysts’ estimates and not reflected in the stock prices, according to Taner and John Massey, a money manager at SunAmerica Asset Management Corp.
Both used the companies’ earnings growth during the last major introduction of generics, in 2006 and 2007, to come up with estimates.
Taner sees increases of at least 20 percent in the companies’ earnings in 2011, 2012 and 2013. Sales won’t rise as fast because generics are cheaper than the branded products, he said. Massey estimates profit at Walgreen and CVS will rise 20 percent to 30 percent in 2011, 2012 and part of 2013, before the growth starts slowing.
CVS Chief Financial Officer Dave Denton said it’s too early to make predictions because profits will be determined by pricing, and prices are unknown. &#8226