Conservative · Stocks to Consider and Updates

CVS Health Reports Strong Results

CVS  CVS Health (NYSE: CVS – $89.91) reported net revenues for the fourth quarter of $41.14 billion, up 11% from 2014, and topped analyst projections of $41.12 billion. The company said it posted adjusted net income of $1.70 billion, or $1.53 per share, up from $1.21 per share, in the prior year period and in line with analyst estimates. Specialty pharmacy sales helped dive revenues in the Pharmacy Services Segment, which increased 11.1% to $26.5 billion from a year ago.  Revenues in the Retail/ Long-Term Care segment increased 12.5% to $19.9 billion. Approximately half of the increase was driven by the addition of long-term care operations acquired as part of the Omnicare acquisition. Same store retail sales increased 3.5% over the prior year period, with pharmacy same store sales up 5.0% and front store sales down 0.5%. Front store sales were negatively affected by softer customer traffic, partly offset by an increase in basket size. Pharmacy same store prescription volumes rose 5.0%. During the period the company opened 53 new retail stores, acquired 1,672 pharmacies from the Target transaction and closed 14 stores. As of year-end CVS operated 9,655 retail stores, including pharmacies in Target stores, in 49 states, the District of Columbia, Puerto Rico and Brazil.

CVS confirmed its previous guidance for the full year and first quarter of 2016. The Company expects to deliver adjusted EPS of $5.73 to $5.88 for 2016, contingent upon the company’s completion of its $4.0 billion stock buyback program. A recent pullback in price bolsters CVS’ three- to five-year price appreciation potential and the picture gets even brighter on a risk-adjusted basis, given CVS’ top ranking for safety, well-below-average beta coefficient (.085) and healthy finances. Strong cash flow generation and management’s penchant for rewarding shareholders with dividend increases (27% over the past five years) and share buybacks, further sweeten the pot.


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