CVS Caremark Corporation (CVS) Earnings Preview: A Great Company For The Next Ten Years And Beyond

CVS Caremark Corporation (NYSE:CVS) is the largest chain of drug stores in the U.S., with approximately 7,300 stores in 41 states, Puerto Rico, and Washington, D.C.  For such an established company, CVS has done an excellent job of creating shareholder value.  In fact, a more shareholder-friendly company is tough to find!  With the company set to report earnings next Wednesday, I don’t foresee any major surprises; rather, we should see an affirmation of the company’s commitment to growth and its investors.

Over the past decade, CVS’ share price has climbed from a low of $10.92 in 2003 to its current level of around $52, a gain of 375% in ten years time.  Also during that time period, the company raised its dividend each and every year, and bought back a considerable amount of shares.

CVS is either the number one or two pharmacy chain in 73 of the 100 largest markets in the United States, and filled over 658 million prescriptions last year, representing a 20% share of the entire market.  Pharmacy sales are CVS’ largest revenue source by far, accounting for 68% of sales, with OTC products contributing an additional 11%.  In other words, all of the other “stuff” they sell at CVS (magazines, candy, groceries, photo services, etc.) only makes up 21% of the company’s sales.

The company is also the largest operator of retail health care clinics under its MinuteClinic brand.  This is an area where the company foresees a lot of growth, since they have stated plans to open 100 new clinics a year for the next five years.

In addition to the growth the company plans to see from its MinuteClinics, the company plans to increase its presence in the largest U.S. markets.  With the incredible presence of CVS, it may surprise some to know it has stores in 92 of the top 100 markets, leaving some room for expansion there.

The company also likes to grow through acquisitions.  Most notably, CVS acquired Caremark Rx for $26.5 billion in 2007, Longs Drug Stores in 2008 for $2.9 billion, and most recently the UAM Medicare Part D business last year for $1.3 billion.  These acquisitions are very significant because they have allowed CVS to enter markets it had not previously had a large presence in.

For example, when CVS acquired Longs it instantly made CVS the largest drug store chain in both California and Hawaii ,and greatly strengthened its presence in Arizona and Nevada.

As mentioned before, CVS has consistently increased its dividend for every year over the past decade (see below).  Since 2003, the stock’s yield has increased from 12 cents per share to 90 cents currently.  I would be very surprised if we did not see an increase for 2013.