CVS Caremark: Fighting the flu

by Geoffrey Seiler, editor BullMarket.com

The U.S. is in the midst of one of its worst outbreaks of flu in recent history. While that's bad news for the people that have or will come down with the flu, it should translate into stronger sales of cold and flu medications as well as prescriptions for products like Tamiflu.

This should prove to be a tailwind for Recommended List selection CVS Caremark (CVS) when it reports results covering the flu season.

At least 47 states have reported widespread flu activity, with 24 of the states experiencing high levels of the illness, the CDC said. The outbreak is severe enough in New York for Governor Andrew Cuomo to declare a public health emergency.

The move allows pharmacies, which previously could only administer flu shots to people aged 18 or older, to treat children aged six and up.

Massachusetts has been another hard-hit state, with the mayor of Boston also declaring a public health emergency and urging anyone that had not received a flu shot to get one.

Meanwhile, CEO Larry Merlo spoke at the JPMorgan Global Health Care conference and touched on a number of the initiatives aimed at expanding CVS's role in healthcare beyond traditional retail pharmacy operations.

CVS also plans to aggressively expand its MinuteClinics, which Merlo said was the largest and fastest growing retail clinic business in the U.S.

CVS had 640 of the walk-in clinics in operation in 25 states and the District of Columbia at the end of 2012. The clinics are open seven days a week and treat walk-in patients without an appointment. It has provided care to 8 million patients in the last three years.

It has added 200 MinuteClinics in the last two years and last month it said it plans to add another 150 outlets this year, growing to a total of 1,500 by 2017. It is a direct response to the anticipated increase in the number of insured Americans as a result of the Affordable Care Act.

The company is optimistic heading into 2013. It expects to reported a profit of $3.84 to $3.98 from its continuing operations, which was ahead of the $3.82 per share that Wall Street analysts were looking for at the time guidance was released last month.

Overall, the severity of the flu season is an added tailwind to what was already shaping up to be a good year for CVS, and the company also expects to benefit from more Americans having health insurance under the Affordable Care Act (ACA).

Meanwhile, the company plans to use its strong free cash to aggressively buy back shares and increase its dividend.

While the cycling of the Walgreen-Express Scripts rift will make comps tougher this year, overall the dispute has been a winner for CVS. Management now expects to keep 60% of the customers it gained as a result of Express Script customers having to find new pharmacies.

Overall, CVS remains well positioned to benefit from healthcare reforms and recent issues at its rivals. We also think the MinuteClinics will prove to be a nice added revenue stream.

Learn more about this financial newsletter at Geoffrey Seiler's BullMarket.com.

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