We’re finally approaching the end of Wall Street’s vacation season, making it likely that the market will develop a stronger trend soon, taking many currently quiet stocks with it. One candidate is CVS Caremark Corp. (CVS), which has been trading in a well-defined range between 44 and 46 on low volume for the last month. Currently hovering near the upper edge of the range, there are plenty of catalysts to spur CVS onward and upward, as Richard Moroney explains in today’s Daily Alert.
“We are upgrading CVS Caremark Corp. (CVS, $45) to a Buy and a Long-Term Buy. CVS has delivered five straight quarters of double-digit sales growth, driven by strong operating momentum at both the retail pharmacy and the pharmacy-benefits-management business. Same-store sales grew 7.0% in the first half of 2012, while free cash flow rose 37% to $2.78 billion. CVS hiked its quarterly dividend by 30% to $0.1625 per share in March and now yields 1.4%.
“The stock isn’t especially cheap, trading at nearly 14 times estimated 2012 earnings, in line with other drug retailers and 10% below the median for S&P 1500 healthcare stocks. But CVS continues to impress investors with its outlook. It has increased its full-year guidance three times this year, estimating that it can retain half of the customers it gained from Walgreen’s (WAG) dispute with Express Scripts (ESRX). Rising analyst estimates for CVS target per-share earnings growth of 20% in both the September and December quarters.”
- Richard J. Moroney, Dow Theory Forecasts, August 27, 2012