* Gives 2013 earnings forecast above analysts' estimates
* Raising dividend by 38 percent
* Plans to repurchase $4 billion of shares in 2013
* Shares up 2 percent after reaching all-time high
By Jessica Wohl
Dec 13 CVS Caremark Corp is looking at
changes in U.S. healthcare as an opportunity to serve more
customers, whether they are picking up prescriptions, getting
them through the mail or stopping by an in-house MinuteClinic
for a checkup.
The company, formed when drugstore chain CVS bought pharmacy
benefits manager Caremark in 2007 in a $27 billion all-stock
deal, gave a 2013 forecast on Thursday that exceeded Wall Street
estimates as it tries to use its combined businesses to its
advantage. It also said that this year's results are trending
toward the high end of its expectations.
The merger, scorned by some industry watchers years ago, now
appears to be putting more pressure on rivals that operate in a
limited part of the sector, as CVS is gaining ground with its
model of combined retail, drug benefits management and clinic.
"CVS' integrated model messaging has been gaining momentum
over the past few years, while other players will need to
convince the market that their new business strategies will
ultimately prove superior," said ISI Group analyst Ross Muken.
Muken raised his price target on CVS shares to $57, from
$53.50, after the company's forecast.
Shares of CVS rose as much as 4.7 percent to an all-time
high on Thursday. Shares of its larger drugstore rival, Walgreen
Co, and its larger competitor in the pharmacy benefits
management (PBM) business, Express Scripts Holding Co,
each fell less than 1 percent.
The coming year stands to be a busy one for the healthcare
sector as the United States prepares for 30 million people to
join the ranks of insured patients under the Affordable Care
Act, or "Obamacare," starting in 2014. The large population of
aging baby boomers and rising demand for specialty drugs could
be opportunities for companies such as CVS.
The industry is already seeing rapid growth in the number of
people signing up for Medicare Part D prescription plans, which
are part of the Medicare healthcare plan for older people.
"You've got 10,000 baby boomers becoming eligible for
Medicare every day now," CVS Chief Executive Officer Larry Merlo
said. "The change is upon us, and it will evolve over the next
At the same time, the number of Americans with chronic
diseases keeps rising, and those patients spend five times more
than others on healthcare as they often need to visit doctors
more frequently and take medications, Merlo said. If
complications arise, additional treatment can be costly.
About half of Americans suffer from one or more chronic
diseases. Among those who are newly diagnosed with a chronic
disease, almost half fail to stick with their drug regimen in
the first year, Merlo said.
Merlo said that CVS can play a bigger role in getting
patients with chronic conditions such as diabetes to keep taking
their drugs, which can save billions of dollars.
"The lack of medication adherence is costing our healthcare
system some $300 billion a year in unnecessary costs," he said.
For 2013, CVS expects to earn $3.84 to $3.98 per share,
excluding special items. Analysts on average were expecting
$3.82, according to Thomson Reuters I/B/E/S.
The company's forecast assumes the repurchase of $4 billion
of its shares during 2013. CVS has bought back $3.5 billion to
$4 billion worth of its stock annually since 2010.
CVS also plans to raise its quarterly dividend by 38
percent, bringing the payout to 22.5 cents per share.
First-quarter revenue should fall 2.5 percent to 4 percent
due to the rise in usage of generic drugs, which sell at lower
prices than branded drugs but are more profitable, it said.
CVS forecast first-quarter earnings of 77 cents to 80 cents
per share before items, while analysts expected 74 cents.
Meanwhile, its main competitors have work to do.
Walgreen Co is trying to lure patients back to its
stores after reaching a new contract with Express Scripts.
CVS still expects to retain at least 60 percent of the
Walgreen patrons that switched to its chain during an 8-1/2
month impasse when Walgreen and Express Scripts stopped working
together. That is expected to boost CVS' fourth-quarter earnings
by at least 12.5 cents per share.
In November, Express Scripts said its business would come
under pressure because of the weak economy, leaving analysts to
question that company's strategy in the wake of its acquisition
of another PBM, Medco Health Solutions.
Merlo declined to comment on whether CVS planned any
acquisitions, adding that it was always reviewing "bolt-on"
purchases to support its retail or PBM units.
More patients have been coming to CVS's 650 MinuteClinic
healthcare clinics, and the company plans to have more than
1,500 of the clinics by 2017. The day after Thanksgiving was
their busiest day to date, with 19,000 visits on Nov. 23. CVS
expects more than 3 million visits to MinuteClinic in 2012.
Shares of CVS were up 1.9 percent at $48.48 in afternoon
trading after rising as high as $49.76 earlier in the session.