Drug dispenser giant CVS Caremark (NYSE:CVS) closed out its year by reporting impressive growth in its pharmacy services business. This growth has taken close to five years to achieve, and while the top line trends look encouraging, the total profit growth outlook looks more challenging. Combined with a significant recent stock run, the investment appeal of the stock doesn't currently appear overly healthy.

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Full-Year Recap
Sales advanced 11.8% to $107.1 billion. The leading contributor was pharmacy services, or the Caremark pharmacy benefit management (PBM) arm that competes with pure play rivals including Medco Health Solutions (NYSE:MHS) and Express Scripts (Nasdaq:ESRX), which are actually planning to merge and create the dominant PBM player.

Health insurers, including UnitedHealth Group (NYSE:UNH), also operate their own PBM businesses. The PBM segment for CVS posted an impressive 24.9% annual growth. The CVS retail pharmacy, which competes with Rite Aid (NYSE:RAD), reported respectable growth of 3.9% as same-store sales improved 2.3%. Each unit accounted for roughly half of total sales.

The retail pharmacy business is much more profitable and brought in $4.5 billion in profits for the year. In contrast, the PBM side brought in $2.4 in operating income. Total operating income was $6.1 billion. Pre-tax income rose a modest 2.6% to $5.7 billion. Higher income tax expense meant net income rose less than 2% to $3.5 billion. Share buybacks boosted the bottom line a bit more to 3.2% as earnings per diluted share reached $2.57. Free cash flow came in at approximately $2.91 per diluted share. (To know more about income statements, read Understanding The Income Statement.)

For the coming year, CVS expects to report earnings in a range of $2.96 to $3.06. Analysts currently project sales growth of nearly 12% and total sales of almost $120 billion. The company said to expect strong free cash flow production between $4.6 billion and $4.9 billion, or roughly $3.41 and $3.64 per diluted share.

The Bottom Line
CVS shares are bumping up against their highs for the year and currently trade at a forward P/E of about 12. The forward free cash flow multiple is slightly more reasonable at less than 12, but both multiples suggest that much of CVS Caremark's future growth is already discounted in the share price. The PBM business is finally seeing some nice growth trends, which are the first since CVS merged with Caremark in 2007.

However, it looks to be gaining new business with aggressive pricing that could make total company profit growth more difficult to sustain over the long haul. Retailing trends are more steady, but it will be hard for CVS to grow its store count aggressively going forward. (For additional reading, check out 5 Must-Have Metrics For Value Investors.)

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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.