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Analyst Blog

On Dec 19, 2013, Zacks Investment Research downgraded CVS Caremark Corporation (CVS - Analyst Report) to a Zacks Rank #3 (Hold) from a Zacks Rank #2 (Buy).

Why the Downgrade?

Though the generic wave in the pharmaceutical industry is poised to be in favor of CVS, dwindling front-end sales reflect sluggish demand characterizing the U.S. economy. Intense competition and tough industry conditions act as major hurdles for the company. With Walgreen Co. (WAG - Analyst Report) and Express Scripts Holding Company (ESRX - Analyst Report) once again joining forces, we believe that CVS might lose some momentum in the coming days.

CVS Caremark reported third quarter adjusted earnings per share (EPS) of $1.05, beating the Zacks Consensus Estimate of $1.02 by 6.86%. CVS Caremark expects its adjusted earnings to be in the range of $4.36 to $4.50, reflecting a growth of 10.25% to 13.75% in fiscal 2014.

The persistent weak macro economic conditions could further hamper the growth prospects as the company is already facing pricing pressure and incurring high operating expenses due to increased competition particularly in the Pharmacy Benefit Management (PBM) and retail segments.

CVS Caremark has witnessed sharp downward estimate revisions for 2013 with 4 estimates going down in the past 30 days and no upward revision over the same time horizon.

The Zacks Consensus Estimate for 2013 decreased 0.25% to $3.96 per share over the last 30 days. However, the Zacks Consensus Estimate for 2014 rose to $4.47 from $4.46 over the same time frame, reflecting an increase of 0.22%.

Other Stocks to Consider

Currently, the stock carries a Zacks Rank #3 (Hold). Investors interested in the industry can look at Herbalife Ltd. (HLF - Snapshot Report),  which carries a Zacks Rank #2 (Buy).

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