Walgreen Co. and CVS Caremark Corp. are both poised to improve their earnings performance heading into second half of 2012 and next year, according to a Cantor Fitzgerald analyst who started coverage of the stocks with "Buy" ratings.
THE OPINION: Walgreen, the largest U.S. drugstore chain, will be helped by the recovery of some business it lost due to a recently concluded contract dispute with pharmacy benefits manager Express Scripts Holding Co., analyst Ajay Jain said in a Wednesday research note.
Walgreen used to fill prescriptions for St. Louis-based Express Scripts, which runs drug plans for employers, insurers and other customers as the nation's largest pharmacy benefits manager, or PBM. The companies let a contract between them expire at the end of last year, but they said last month they will resume doing business in September.
Walgreen, based in Deerfield, Ill., also will be helped by the impact of acquisitions and generic drugs, which help pharmacy profitability because they provide a wider margin between the cost for the pharmacy to purchase the drugs and the reimbursement received.
CVS Caremark, based in Woonsocket, R.I., is the second largest drugstore chain, and it also operates one of the largest PBMs. Jain said in a separate note operating income is set to improve around 15 percent this year for both of those segments.
"After several transition years, we look for continued earnings improvement in both CVS' retail and (PBM) operations in 2012," he said.
The analyst set a target of $43 for Walgreen and $55 for CVS Caremark.
THE STOCKS: Walgreen shares climbed 16 cents to $35.60 in Wednesday afternoon trading, while CVS shares rose 12 cents to $44.24. Broader trading indexes were mixed.
Source: http://news.yahoo.com/analyst-rates-cvs-walgreen-shares-buy-185511963--finance.html
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