After a period of active M&A moves, drug retailer CVS Caremark (NYSE:CVS) appears to have entered an extended period of steady growth. The market has already taken notice, but the company is still worth an investment consideration.

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Company Overview
CVS breaks its business into three distinct units. The first is the flagship drugstore franchise, which competes with the likes of Rite Aid (NYSE:RAD), as well as more general retailers including Wal-Mart (NYSE:WMT) and Costco (Nasdaq:COST). The Caremark unit is a traditional pharmaceutical benefits manager, or PBM, that competes with pure play Express Scripts (Nasdaq:ESRX). Finally, a newer initiative is Minute Clinic, which is meant to compete with traditional doctors' offices but offers more convenient options for patients with minor aches and illnesses.

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Despite the separate missions, there is growing overlap among the units. CVS can serve corporations with options for their employees to get their prescriptions filled through mail order, or in the store. And of course, Minute Clinic is an option. It sees the lack of integration in the healthcare industry as something to address and helps its customers. Recent company estimates put its market share of the entire U.S. prescription market at 19.4%, which is among the highest of any rival.

Outlook and Valuation
Analysts project full year sales growth of nearly 15% and total sales of $123 billion. The current profit projection for 2012 currently stands at $3.31 per share and is projected to increase 11.5% to $3.69 per share. Sales for 2013 are expected to grow just over 4% to just over $128 billion. Given the profit projections, the forward earnings multiples for the next two years are 13.7 and 12.3, respectively and stand right at the market forward P/E average.

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The Bottom Line
CVS bought Minute Clinic back in 2006 and completed the acquisition of Caremark back in 2007. More than five years later, it is just now starting to see the benefits of combining one of the largest PBM businesses with its retail stores. It experienced a number of contract losses in Caremark after making the acquisition, but appears to have reached a steadier point of consistent, double-digit sales and profit growth.

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This visibility should continue for the foreseeable future and makes CVS Caremark one of the safer bets in the drug retail space. The stock is no longer a steal, but the earnings multiple is quite reasonable given the growth expectations.

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At the time of writing, Ryan C. Fuhrmann did not own shares in any of the companies mentioned in this article.

Tickers in this Article: CVS, RAD, ESRX, WMT

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