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On Apr 16, Zacks Investment Research upgraded CVS Caremark Corporation (CVS - Analyst Report) to a Zacks Rank #2 (Buy) from a Zacks Rank #3 (Hold).

Why the Upgrade?

The long-term expected earnings growth rate for this Rhode Island-based integrated pharmacy service provider is 13.4%. Moreover, CVS has delivered positive earnings surprises in all of the last 4 quarters with an average beat of 3.5%.

CVS reported its fourth-quarter and full-year 2013 results on Feb 11, 2014. Adjusted earnings per share came in at $1.12, beating the Zacks Consensus Estimate of $1.11 by 0.90% and exceeding the prior-year earnings by 15.8%.

Earnings were primarily aided by healthy top-line growth of 4.6% in the reported quarter, which was largely driven by a combined force of 5.2% year-over-year increase in net revenues from the Pharmacy Services segment and 5.6% rise in net revenues from the Retail Pharmacy segment.

With respect to segment performance, net revenues from CVS's Pharmacy Services segment increased 5.2% to $19.6 billion in the fourth quarter, principally driven by drug cost inflation, new products and new clients in the specialty pharmacy business.

On the other hand, same-store sales increased 4.0% over the prior-year quarter, with a 6.8% rise in pharmacy same-store sales. This contributed to the 5.6% rise in net revenues at the Retail Pharmacy segment to $17.2 billion.

Based on its strong performance, CVS raised its first-quarter 2014 adjusted earnings guidance to the range of $1.03–$1.06 per share. This new guidance is higher than the previous estimation by 7 cents and thereby, equates to adjusted EPS growth of 24.25% to 28.25%.

CVS also expects its consolidated revenues to increase 4.25% to 5.5% in the first quarter. Moreover, the company has raised its free cash flow guidance to the band of $5.5–$5.8 billion from $5.1–$5.4 billion guided earlier.

The Zacks Consensus Estimate for earnings for 2014 remained flat at $4.47 per with no downward revision over the last 30 days. For 2015, however, one estimate was revised upward over the same time frame, raising the Zacks Consensus Estimate by 0.2% to $5.02 per share.

Other Stocks to Consider

In the broader drug retail/wholesale space, Rite Aid Corp. (RAD - Analyst Report), Spartan Stores Inc. (SPTN - Snapshot Report) and Herbalife Ltd. (HLF - Snapshot Report) are performing well. While Rite Aid and Spartan Stores hold a Zacks Rank #1 (Strong Buy), Herbalife retains a Zacks Rank #2 (Buy).

Read the Full Research Report on CVS
Read the Full Research Report on RAD
Read the Full Research Report on HLF
Read the Full Research Report on SPTN


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