CVS Caremark's Growth Pace Pleases Analysts

CVS Caremark's (NYSE: CVS) second-quarter performance in its prescription benefits management segment drew plaudits from analysts Wednesday.

CVS is among the five largest such managers in the U.S., and the only one with an attached retail operation. Most insured Americans receive drug benefits administered by such programs, which process and pay drug claims.

CVS pharmacy services grew 16 percent in the second quarter to $21.8 billion, versus retail segment growth of 4.5 percent to $17 billion.

Morgan Stanley's Richard Goldwasser said CVS is well-positioned to take advantage of increasing rates of insurance through Obamacare's expansion of Medicaid.

CVS beat second-quarter expectations, with prescription management a key driver of results, Goldwasser said in a note Wednesday reiterating an Overweight rating and $85 target.

On the retail side, CVS' second-quarter same-store sales decline of 0.4 percent was its best performance in a year. Goldwasser said that excluding the company's recent halt to tobacco sales, the figure would have risen by 0.7 percent.

CVS began phasing out tobacco sales earlier this year, a move that will cost $2 billion in annual sales and reduce earnings by $0.6 to $0.09 cents a share, managers said in a conference call earlier Wednesday.

But Barclays' Meredith Adler said the tobacco phase-out, slated for completion in October, "should eventually boost growth and solidify CVS' relationship with healthcare providers."

In a note Wednesday, Alder maintained an Overweight rating and raised her target to $87, from $85.

Likewise Argus' Christopher Graja raised his target to $85 from $83, maintaining a Buy rating.

"Management has described a 'Silver Tsunami' where 10,000 people are turning 65 every day over the next decade," Graja said in a note Wednesday.

"Thirty million people will gain access to healthcare through Obamacare and CVS has a 21 percent share in the specialty drug market," Graja added.

CVS slumped 0.35 percent Wednesday afternoon to $77 a share.