WOONSOCKET – CVS Caremark Corp., which saw its stock price take a big hit Monday because of a dispute with Walgreen Co., got a vote of confidence on Tuesday from a Wall Street Journal columnist.
John Jannarone, writing in the paper’s Heard on the Street column, said investors “overreacted” Monday by selling so many CVS shares that the stock fell 8.1 percent, closing at $31.04 in New York Stock Exchange trading.
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“CVS still trades at just 11 times this calendar year’s consensus earnings, compared with Walgreen’s 13.3 times,” he wrote. “At that price, investors should take the chance to fill up.”
CVS stock was roughly flat Tuesday, trading at $30.93 a share at 1:06 p.m. amid a broader rebound in the stock market. CVS shares have dropped 19 percent since hitting a 52-week high of $38.27 on Oct. 21.
Walgreen announced Monday it will no longer participate in new or renewed prescription-drug plans awarded to CVS’ pharmacy-benefit-management division, citing a lack of communication between the companies and changes in reimbursement rates. CVS criticized Walgreen’s decision but said it was open to discussions between the two sides.
Jannarone said the dispute presents risks for both Walgreen and CVS, although “CVS likely faces greater damage” since health providers will be less likely to contract with the company if their participants can’t fill prescriptions at Walgreen, the nation’s largest drugstore chain by stores and sales.
CVS “will probably need to adjust prescription pricing so the incentive to shop at CVS [instead of Walgreen] is reduced,” Jannarone said.
“Even if that happens, investors shouldn’t be overly concerned,” he added. “That Walgreen lashed out is probably testament to the underlying strength of CVS’ business. Indeed, CVS’ same-store pharmacy-sales growth has outpaced Walgreen’s in each of the past four quarters.”
Additional information is available at cvscaremark.com.
