CVS: Loved By Customers and Investment Banks

Apr. 9.07 | About: CVS Health (CVS)

Much of the recent news around CVS Caremark Corp. (NYSE:CVS) has involved its recent $26.5 billion acquisition of Caremark, which was completed two weeks ago. But to me, there are a couple of other things that have looked quite interesting.

I didn't have a single CVS store in my area until about 8 months ago, when the local Savon Drugs stores started undergoing a serious face lift. Within a matter of weeks, these run down stores had been renovated with a clean new look, bright lights and friendlier staff. This happened to all of the 3 Savon's within a 5 mile radius.

Then the marketing campaign kicked in, encouraging shoppers to sign up for the CVS reward card. Shoppers got 10% off their bill at checkout if they signed up for the ExtraCare Account, and 2% cash back on future purchases both in-store and online. I even received a $30 free gift card offer if I submitted a new prescription or transferred an existing one to CVS.

One has to admit that even before the Caremark deal, CVS was much loved by the likes of Goldman Sachs (NYSE:GS) and UBS (NYSE:UBS). And who can blame them? CVS is the largest chain of drugstores in the US and trades at a discount to its competitors.

Indeed, CVS trades for a mere 15 times 2008 earnings, while competitor Walgreens (WAG) trades at a multiple of 20. I won't even mention Rite Aid (NYSE:RAD), which trades at a P/E of 100 (35 times the most aggressive of estimates).

For CVS, the stock has not kept up with the market for the last year - mostly due to the large acquisition of Caremark, but the earnings should improve once the true potential of the acquisition is realized through higher sales and lower costs.

I recommend buying this stock.

CVS 1-yr chart: