CVS Caremark Corporation (NYSE: CVS), the largest pharmacy health care provider in the United States, boasts a market cap of $91 billion and an Enterprise Value of nearly $102 billion. Though immense, CVS continues to show growth across multiple operational segments and the company should continue to benefit from the ongoing implementation of the health reform, aka "Obamacare."
Highlights from the recently released 2nd Quarter Earnings Report (for the quarter ended June 30, 2014), reveal growth in multiple metrics, which is great news for current shareholders.
In the 2nd Quarter, net revenues increased 10.7%, from $31.2 million to $34.6 million. This was driven primarily from a 16.2% jump in Pharmacy Services Segment revenues from $18.8 billion to $21.8 billion. Related, processed pharmacy network claims rose 2.2% to 210.4 million, dampened by slight decreases in Medicare Part D claims and 200,000 less mail choice claims.
Adjusted earnings per share jumped 16.5% versus Q2 2013 to $1.13. In light of this, full-year adjusted EPS guidance was slightly raised from $4.36-4.50 to $4.43-4.51.
GAAP diluted EPS from continuing operations significantly increased from $0.91 to $1.06, a 16.7% increase. Likewise, full-year guidance rose from $4.09-4.23 to $4.16-4.24.
$2.2 billion of free cash flow was generated in Q2 2014, with $3.1 billion of cash flow from operations. CVS confirmed a 2014 full-year FCF range of $5.5-5.8 billion. At today's EV, this results in and EV/FCF ratio of 17.6 to 18.5. This range represents a solid value for a company that continues to grow revenues and EPS at double-digit rates.
The Impact of Health Reform
CVS reports that approximately 8 million people have now enrolled in public exchanges via Obamacare mandates. Also, 6.7 million individuals have gained access to Medicaid. While exact figures remain somewhat obscure, the overall trend bodes well pharmacy health care providers, such as CVS.
As both a physician and hedge fund manager, I firmly believe that CVS Caremark is well-positioned to remain at the forefront of the burgeoning health care population's needs. With continued operational initiatives resulting in double-digit bottom line growth, CVS should be strongly considered in any long-term investment portfolio.
Disclosure: The author is long CVS. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.