The first stock in our annual countdown is CVS Caremark (CVS).
The company is no stranger to long-term investors — currently ranked 37th in the most widely-followed MANIFEST 40.
CVS Caremark Corp. is a pharmacy health care provider in the U.S. with integrated offerings across the entire spectrum of pharmacy care. The company operates in the following segments: Pharmacy Services, Retail Pharmacy and Corporate. The Pharmacy Services segment provides a full range of pharmacy benefit management services to its clients consisting primarily of employers, insurance companies, unions, government employee groups, managed care organizations and other sponsors of health benefit plans and individuals throughout the U.S. The Retail Pharmacy segment includes retail drugstores, its online retail pharmacy website, CVS.com, onsite pharmacy stores and its retail health care clinics. Its retail drugstores are located in various states, including Puerto Rico and the District of Columbia operating primarily under the CVS/pharmacy name. The CVS/pharmacy stores sell prescription drugs and a wide assortment of nationally advertised brand name and private label merchandise. The Front store categories include over-the-counter drugs, beauty products and cosmetics, film and photo finishing services, seasonal merchandise, greeting cards and convenience foods. The Corporate segment provides management and administrative services to support the overall operations of the company. CVS Caremark was founded in 1963 and is headquartered in Woonsocket, RI.
Business Model Analysis
Based on a sales growth forecast of approximately 8%, a net margin forecast of 3.8% and a projected average P/E ratio of 15.0x — the projected annual return is approximately 15%.
The quality rating is 80.6 (Excellent, top quintile) based on a financial strength rating of 86 (A+), earnings stability in 94th percentile and favorable growth and profitability forecasts versus the Pharmacy Services group.
As shown in the accompanying figure, the low total return forecast for CVS is 13%. [Source: Value Line Investment Survey, 9/21/2012]