Today's Pair Trade: Long CVS, Short SPY
CVS Caremark Corporation today announced that its Board of Directors has approved a new share repurchase program for up to $2.0 billion of its outstanding common stock. The share repurchase authorization, which is effective immediately and expires at the end of 2011, permits the Company to effect the repurchases from time to time through a combination of open market repurchases, privately negotiated transactions, accelerated share repurchase transactions, and /or derivative transactions.
Dave Denton, EVP and CFO of CVS Caremark, stated, "We're very pleased with the Board's approval of this new share repurchase program and beleive it reflects well-placed confidence in the future growth of CVS Caremark's business and an ongoing commitment to increase shareholder value. We're very focused on the efficient allocation of capital and we will continue to invest in internal projects that meet our return hurdles and use the rest of our remaining free cash flow to increase shareholder value."
Positive Commentary
Today CVS announced a share buyback program for up to $2 bililon (~60million shares) of its oustanding shares. It is likely that CVS sees less of a need to hoarde cash in the aftermath of the financial crisis; instead, they would prefer to give a boost to their shareholders. Although it is not coming in the form of a dividend, reducing the number of outstanding shares inherently increases the value of each share.
CVS also mentioned that they expect to generate "significantly more" free cash flow in the next five years than the previous five and is keen on using that extra cash, at least in the near term, to enhance shareholder value in the form of buybacks and potentially dividends.
Negative Commentary
Although this buyback appears to be bullish, there are some negative factors that could prove problematic.
Just last week Walgreen announced that it would stop filling prescriptions for new CVS plans starting next year. Walgreen stated that CVS prescription plans favored CVS stores and had "unpredictable" reimbursement rates. The stock responded negatively when the news hit.
However, CVS has indicated that it plans to open a dialogue with Walgreen in an effort to resolve the issues between the two pharmacies.
Conclusion
We think this Pair is worth taking a look - you can decide if it's a smart investment decision or not. On the year, CVS is up just 5.7%, trailing the overall market.
If you're interested in seeing what this pair looks like, take a visit to our FREE Pair Trading Tool and input CVS (long) vs SPY (short). The tool is completely free; however, a short registration is required.
Feel free to contact me at phil@catalystcorner.com with any questions or comments you have about the article.
Catalyst Corner is a financial website that provides FREE in-depth research on companies with significant "catalysts" coming up in the near-term. Our research reports are written by Wall Street professional analysts and provide in-depth information you need to know in order to take advantage of these market opportunities.
Disclaimer: The information disseminated by Catalyst Corner ("Catalyst", "us", or "we") is for informational purposes only, and is neither a solicitation to buy nor an offer to sell securities. We do undertake or purport to render any investment advice or recommendations for the buying and selling of securities.
Disclosure: No positions
CVS Caremark Corporation today announced that its Board of Directors has approved a new share repurchase program for up to $2.0 billion of its outstanding common stock. The share repurchase authorization, which is effective immediately and expires at the end of 2011, permits the Company to effect the repurchases from time to time through a combination of open market repurchases, privately negotiated transactions, accelerated share repurchase transactions, and /or derivative transactions.
Dave Denton, EVP and CFO of CVS Caremark, stated, "We're very pleased with the Board's approval of this new share repurchase program and beleive it reflects well-placed confidence in the future growth of CVS Caremark's business and an ongoing commitment to increase shareholder value. We're very focused on the efficient allocation of capital and we will continue to invest in internal projects that meet our return hurdles and use the rest of our remaining free cash flow to increase shareholder value."
Positive Commentary
Today CVS announced a share buyback program for up to $2 bililon (~60million shares) of its oustanding shares. It is likely that CVS sees less of a need to hoarde cash in the aftermath of the financial crisis; instead, they would prefer to give a boost to their shareholders. Although it is not coming in the form of a dividend, reducing the number of outstanding shares inherently increases the value of each share.
CVS also mentioned that they expect to generate "significantly more" free cash flow in the next five years than the previous five and is keen on using that extra cash, at least in the near term, to enhance shareholder value in the form of buybacks and potentially dividends.
Negative Commentary
Although this buyback appears to be bullish, there are some negative factors that could prove problematic.
Just last week Walgreen announced that it would stop filling prescriptions for new CVS plans starting next year. Walgreen stated that CVS prescription plans favored CVS stores and had "unpredictable" reimbursement rates. The stock responded negatively when the news hit.
However, CVS has indicated that it plans to open a dialogue with Walgreen in an effort to resolve the issues between the two pharmacies.
Conclusion
We think this Pair is worth taking a look - you can decide if it's a smart investment decision or not. On the year, CVS is up just 5.7%, trailing the overall market.
If you're interested in seeing what this pair looks like, take a visit to our FREE Pair Trading Tool and input CVS (long) vs SPY (short). The tool is completely free; however, a short registration is required.
Feel free to contact me at phil@catalystcorner.com with any questions or comments you have about the article.
Catalyst Corner is a financial website that provides FREE in-depth research on companies with significant "catalysts" coming up in the near-term. Our research reports are written by Wall Street professional analysts and provide in-depth information you need to know in order to take advantage of these market opportunities.
Disclaimer: The information disseminated by Catalyst Corner ("Catalyst", "us", or "we") is for informational purposes only, and is neither a solicitation to buy nor an offer to sell securities. We do undertake or purport to render any investment advice or recommendations for the buying and selling of securities.
Disclosure: No positions