With shares of CVS Caremark Corporation (NYSE:CVS) trading at around $58.97, is CVS an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let's analyze the stock with the relevant sections of our CHEAT SHEET investing framework:
C = Catalyst for the Stock's Movement
The basic fundamentals and potential catalysts for the stock will be covered, but let's begin by looking at two other important factors, which are company culture and online popularity. Company culture is important because employees who are happy are likely to produce more. Online popularity is important because the online shopping trend has been strong and is likely to gain increased momentum going forward.
In regards to company culture, CVS isn't very impressive. On Glassdoor.com, employees give it a 2.8 rating of 5. This is average. What really stands out is that only 37 percent of employees would recommend the company to a friend. And only 44 percent of employees approve of CEO Larry J. Merlo.
Walgreen scores better for company culture, but not by much. Employees give Walgreen a 2.9 rating of 5. Only 46 percent of employees would recommend the company to a friend, but that's higher than CVS. However, Walgreen scores lower than CVS when it comes to CEO approval. A subpar 41 percent approve of CEO Greg Wasson.
In regards to online popularity (or online traffic), Walgreen is ahead, but CVS is gaining ground. Walgreen has a Global traffic rank of 1307, and a U.S. traffic rank of 255. CVS has a Global traffic rank of 1640, and a U.S. traffic rank of 305. However, Walgreen's traffic has remained mostly still for the past two years, while traffic for CVS has steadily increased.
Over the past three months for CVS, pageviews-per-user has decreased 4.25 percent, time-on-site has decreased 4 percent, and the bounce rate is unchanged. Over the past three months for Walgreen, pageviews-per-user has decreased 10.63 percent, time-on-site has decreased 11.10 percent, and the bounce rate has increased 6 percent.
Here are some positives and negatives for CVS:
Positives:
Revenue and earnings have consistently improved on an annual basis 2.20 percent yield Strong cash flow Quality debt management Five consecutive earnings beats Volume growth in Pharmacy Services Margin expansion Generic wave (higher margins) Increase in cash position Accelerated share repurchase agreement 29.9 percent increase in earnings year-over-year (Q1)Negatives:
4.7 percent increase in operating expenses year-over-year (Q1) 45.1 percent decline in free cash flow year-over-year (Q1) Weak guidance for FY2013 Flat revenue year-over-year (Q1)Now let's take a look at some comparative numbers. The chart below compares fundamentals for CVS, Walgreen, and Wal-Mart Stores Inc. (NYSE:WMT). CVS has a market cap of $72.41 billion, Walgreen has a market cap of $46.30 billion, and Wal-Mart has a market cap of $258.33 billion.
| CVS | WAG | WMT | |
| Trailing P/E | 19.44 | 21.73 | 15.63 |
| Forward P/E | 13.34 | 13.24 | 13.34 |
| Profit Margin | 3.15% | 2.91% | 3.62% |
| ROE | 10.24% | 12.19% | 22.42% |
| Operating Cash Flow | $6.67 Billion | $4.41 Billion | $25.59 Billion |
| Dividend Yield | 1.60% | 2.20% | 2.40% |
| Short Position | 0.90% | 1.40% | 1.70% |
Let's take a look at some more important numbers prior to forming an opinion on this stock.
E = Equity to Debt Ratio Is Strong
The debt-to-equity ratio for CVS is stronger than the industry average of 0.40.
| Debt-To-Equity | Cash | Long-Term Debt | |
| CVS | 0.26 | $1.55 Billion | $9.83 Billion |
| WAG | 0.34 | $2.44 Billion | $6.36 Billion |
| WMT | 0.66 | $7.81 Billion | $54.23 Billion |
T = Technicals Are Strong
CVS has performed well over the past three years.
| 1 Month | Year-To-Date | 1 Year | 3 Year | |
| CVS | 8.56% | 22.97% | 33.89% | 66.63% |
| WAG | 4.05% | 32.92% | 44.94% | 49.39% |
| WMT | 4.02% | 15.74% | 36.07% | 57.64% |
At $58.97, CVS is trading above all its averages.
| 50-Day SMA | 54.78 |
| 100-Day SMA | 52.52 |
| 200-Day SMA | 49.39 |
E = Earnings Have Been Strong
Earnings and revenue have consistently improved on an annual basis.
| 2008 | 2009 | 2010 | 2011 | 2012 | |
| Revenue ($)in billions | 87.47 | N/A | 95.78 | 107.10 | 123.13 |
| Diluted EPS ($) | 2.18 | N/A | 2.49 | 2.57 | 3.03 |
When we look at the previous quarter on a year-over-year basis, we see flat revenue and an increase in earnings.
| 12/2011 | 3/2012 | 6/2012 | 9/2012 | 12/2013 | |
| Revenue ($)in billions | 30.80 | 30.71 | 30.23 | 31.39 | 30.80 |
| Diluted EPS ($) | 0.59 | 0.75 | 0.79 | 0.90 | 0.77 |
Now let's take a look at the next page for the Trends and Conclusion. Is this stock an OUTPERFORM, a WAIT AND SEE, or a STAY AWAY?
T = Trends Support the Industry
Baby boomers are retiring in masses, and they're going to need more medicine as they age. The rise in generics will also improve margins for the industry. On the negative side, consumer weakness might hurt in other areas.
Conclusion
CVS has been a steady performer through the years. It's also a company that takes care of its shareholders and has a strong history of beating earnings. These trends are likely to remain in place over the long haul. As far as CVS vs. Walgreen, Walgreen has outperformed CVS by a wide margin on an all-time basis. However, in recent years, the stocks have delivered similar performances. Therefore, it's a wash.
No comments:
Post a Comment