Friday, November 13, 2009

CVS-Caremark CEO steps up, buys stock (CVS)

CVS-Caremark (CVS) shares have been under siege as of late, and the CEO put his money where his mouth is, buying 17,000 shares over the last few days.


About $11billion in shareholder value has been wiped out since the company announced some startlingly bad news for its PBM (Pharmacy Benefit Management) business - the Caremark segment that it purchased for $21billion in 2006. They announced lost business with the state of New Jersey, the state of Ohio, as well as losses with medicare.

As the shares have dropped from $38 to $30, many are flagging them as undervalued. Earnings estimates for this year and next have dropped to the 2.60-2.80 per share range, valuing the company at just over 10times earnings. Worries about the company's ability to manage its PBM business are totally warranted, but as UBS pointed out the other day, the market is valuing this segment as if it is un-fixable. Could be the case, but it allows for more upside than downside in the shares.


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