NEW YORK — Wall Street calls for the breakup of CVS Caremark? Nope, not so fast.
About a year after analysts called for the split of CVS Caremark's PBM business, they now are changing their tune on the heels of the company's 2011 Analyst Day presentation on Dec. 20.
In fact, shares of CVS Caremark ended 2011 up 17% and, as Dow Jones Newswires reported, is trading at a roughly 3-and-a-half-year high.
During the company's recent Analyst Day presentation, executives outlined a strong growth outlook for 2012 and also announced the approval of an increase in quarterly dividend of roughly 30%. For the pharmacy services segment, operating profit is expected to increase by 11% to 15%.
Last year, president and CEO Larry Merlo defied calls for a CVS Caremark breakup amid the PBM's less-than-favorable performance. But, as the retailer has demonstrated, a lot can change in a year.
In a recent interview with Dow Jones, EVP and CFO Dave Denton was quoted as saying that CVS turned the PBM business from a decline in operating profit in the first half of 2011 to growth in the back half, with further gains expected this year.
Following the Analyst Day presentation, several analysts expressed their optimism and faith in the integrated model.
"The 2013 selling season is the most promising one since CVS acquired Caremark. This reflects the powerful combination of a business model that has come into its own — with 110 million retail interventions lowering costs for payers — just as its largest competitors have meaningful uncertainties in their business," stated Guggenheim analyst John Heinbockel in a research note. "Not only should CVS be able to retain the vast majority of its $16 billion book up for renewal in 2012 at fairly attractive margins but it could well steal billions of dollars in business from its competitors, including Medco and Express Scripts."
Morgan Stanley analyst Mark Wiltamuth stated in a research note, "Five years after its merger with Caremark, CVS is hitting its stride. [The] PBM segment is poised for double-digit operating growth in 2012 and for margin expansion in 2013. [Its] pharmacy strategy is supported by [the] PBM reach providing CVS with a competitive advantage, compared with its retail peers."