CVS capitalizes on Express-Walgreen squabble

The drugstore operator takes a stand, apparently at the expense of the others.

By Stock Traders Daily Nov 29, 2012 1:51PM

Pharmacists filling prescriptions copyright UpperCut Images, UpperCut Images, Getty ImagesBy Barry S. Cohen, Stock Traders Daily


It appears that while Express Scripts (ESRX) and Walgreen (WAG) were squabbling over contract terms, CVS Caremark (CVS) was laughing all the way to the bank.


In the third quarter, CVS earnings were up 16% from a year earlier, beating analyst estimates. The Rhode Island drugstore operator and pharmacy benefit manager, or PBM, evidently gained and kept many of the Walgreen customers that weren't doing business with Express Scripts because of a dust-up between the two companies. 

In fact, CVS management thinks the Walgreen-Express fiasco added 4 cents to its third-quarter earning per share. Because of the added business, CVS raised its earnings estimate for the full year.


For Walgreen, patching things up with Express Scripts may prove to be too little too late. The drugstore chain could permanently lose some 60% of its Express customers to CVS. That translates into a loss in business of some $4 billion annually and may account for the nearly 6% decline in same-store sales during October. Investors have taken note of Walgreen's issues, driving the stock down nearly 6% in the past month, versus a 1% drop in the DJIA.


Express shares also have been under pressure. Even though the company reported a 21% jump in third-quarter earnings -- thanks in part to this year's acquisition of rival Medco Solutions --Express reduced it guidance for 2013, citing a tougher economic climate. The company can't be pleased that one of its largest customers, UnitedHealth (UNH), is bringing pharmacy benefits management in house. 


With its stock price depressed, I think now may be a good time to grab some Express shares. The company is by far the biggest PBM in the United States and many analysts rate the stock a strong buy or a buy. In fact, before the earnings announcement, three investment firms all reiterated their outperform ratings on Express and had over $70 price targets -- compared to Express's current stock price around $53 -- thanks in great part to the $100 billion sales machine the company is expected to be in 2013.


Analysts also like another company in the PBM business, Catamaran (CTRX). Catamaran has rewarded shareholders with a 60% gain in share price year to date. And even though the company's third-quarter earnings declined due to acquisition-related costs, Catamaran, like Express, raised its earnings forecast for the full year.  

If you're wondering how to trade companies mentioned in this article it would be a good idea to consult the Stock Traders Daily's real time trading reports.

Nov 29, 2012 11:29PM

Owned WAG...sold at 2008 downturn, helped us; Bought some back, then sold again...

Bought CVS...Kept for a period of time...Finally sold after blow-up at Walgreens...Ex-Sc.

CVS was near top..

Went back with WAG, better dividend and in my opinion, better growth potential....

When they get all new contracts ironed out...and settle down some with expansion.?

Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
100 character limit
Are you sure you want to delete this comment?


Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.


StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

124 rated 1
266 rated 2
452 rated 3
702 rated 4
671 rated 5
604 rated 6
640 rated 7
495 rated 8
267 rated 9
158 rated 10

Top Picks




Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.