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View: Start Buying CVS Caremark (NYSE: CVS)

|Includes: CVS Health Corporation (CVS)

Highlights:

CVS is much more tied into healthcare rather than general retail than its major competitors. This makes it more dependent on reimbursement policies of insurers, whether governmental (i.e. Medicare and Medicaid) and private insurers.

The stock closed yesterday's trading session at $59.51. In the past year, the stock has hit a 52-week low of $43.30 and 52-week high of $60.66. Technical indicators for the stock are bullish. CVS has a market cap of $72.78 billion and is part of the services sector.

GROWTH AND BALANCE SHEET

CVS Caremark Corp. first-quarter net income jumped 23 percent. It earned $956 million, or 77 cents per share, compared with $776 million, or 59 cents per share, last year. Revenue fell slightly to $30.76 billion. Adjusted earnings totaled 83 cents per share. Generic drugs lifted profitability at CVS's retail business, where gross profit was 30.9 percent of sales, up 2.4 points. Revenue in the retail division rose 0.2 percent to $10.05 billion, while same-store sales of general merchandise items were up 1.2 percent.

CVS narrowed its forecast for 2013 earnings to a range of $3.89 to $4 per share. That compares to its forecast earlier this year for earnings of $3.86 to $4 per share. Analysts expect, on average, earnings of $3.96 per share.

VALUATION

CVS runs the second-largest drugstore chain with 7,400 locations and one of the nation's largest PBMs. It has benefited from the trend so much so that generic drugs now make up more than 81 percent of the prescriptions filled at its retail pharmacies, up from 78.1 percent in last year's first quarter.

CVS PE stands at 18.51 above the industry average of 11.53 and above the S&P 500 average of 16.70. The stock is currently trading 1% above its intrinsic value of $58.64 this suggests that the stock is overvalued at these levels. CVS's current Price/Sales of 0.59 is above the average of its industry of 0.40. The beta of 1.02 implies higher volatility of the stock with respect to the S&P 500. CVS's Total Debt/Equity is 25.20 and is not acceptable for our model. CVS pays out an annual dividend of $0.90, or 1.30%.

RECOMMENDATION for next 6 months: We initiate our coverage with START BUY. The company has demonstrated bullish technical signs and executes well in every segment, international expansion will be the growth area for years to come. CVS has gained 22.94 year-to-date. Our overall score for CVS is 5.67.