Can Investors Trust CVS Caremark Corporation (CVS) with Their Prescription & Investment?

Threats:

1). Competition: Every industry CVS operates in is extremely competitive, and the competition to offer the best product for the least amount of money can lead to margin contraction

2). Margin Compression: The net profit margin for CVS in 2007 was 3.4%, which has dropped down to the current 3.26% level, and further contraction in margins could lead to shrinking profits

3). Falters in the Health Care System: The United States healthcare system is greatly flawed, and will require immense amounts of alterations in the coming years, and any changes that lesson the amount that CVS is paid for each of the prescriptions it fills could severely threatened the company

Competition:

Major publicly traded competitors of CVS include Walgreen (NYSE:WAG) Company , Rite Aid (NYSE:RAD) , Express Scripts (NASDAQ:ESRX) , and UnitedHealth Group (NYSE:UNH) Incorporated . All of these companies compete with CVS and pose serious threats to their success. Walgreen is valued at $38.10 billion, pays out a dividend yielding 2.73%, and carries a price to earnings ratio of 18.08.  Rite Aid is valued at $1.54 billion, does not pay out a dividend, and carries a negative price to earnings ratio.  Express Scripts is valued at $43.61 billion, does not pay out a dividend, and carries a price to earnings ratio of 31.68.  UnitedHealth is valued at $56.97 billion, pays out a dividend yielding 1.52%, and carries a price to earnings ratio of 10.56.

The Foolish Bottom Line:

Financially, CVS is relatively solid. The company possesses good revenue growth, a decently sized dividend, and a reasonable valuation. However, the company is plagued by extremely tight margins and a massive debt load. The company’s future is filled with opportunities that could lead to growth. At the end of the day, CVS appears to be a solid investment in the retail prescriptions industry, coming at a more reasonable valuation than Express Scripts and with higher growth rate than Walgreen.

The article Can Investors Trust CVS with Their Prescription & Investment? originally appeared on Fool.com and is written by Ryan Guenette.

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