Today is Thursday, May 17, 2012

Drug Chains, PBMs

WMT: Wal-Mart puts pressure on drug stores, PBMs with expanded $4 prescription drugs list

Wal-Mart (WMT) knows how to knock the stuffings out of its competitors’ stock prices and make its customers happier.

When it announced its $4 prescription drug program a couple of years ago, the stock prices for Walgreens (WAG), CVS Caremark (CVS) and other drug store chains and pharmacy benefit managers such as Medco (MHS) took a tumble. All of Wal-Mart’s pharmacy competitors met its $4 deal, and they won’t be able to avoid to continue meeting its prices on the expanded list of low priced generics drugs that Wal-Mart announced today.

Somehow almost all of the drug store chains and PBMS have managed to grow their profits despite the generics drugs price war. This price war also will continue to help the makers of generic drugs while putting new price pressures on the big pharma makers of patented prescription drugs.

Wal-Mart said it is expanding its $4 prescription drug program and is specifically targeting the mail order pharmacy benefit managers that health insurers use to reduce their drug costs. The new phase three of Wal-Mart’s program “. . .now covers a 90-day prescription for $10, additional women‚Äôs health medications and a new $4 over-the-counter (OTC) offer. The 90-day option gives more choices to customers and physicians who may have been limited to mail order prescriptions in the past.”

Of course, as it always is with Wal-Mart, the big winners are the consumers.

Some of WMT’s close drug store and PBM competitors include Wallgreens (WAG), CVS Caremark (CVS), Express Scripts (ESRX), Long Drugs (LDG), Medco (MHS), Drugstore.com (DSCM) and Rite Aid (RAD). Daily charts are here. Click on a chart to see weekly and point and figure (PnF) charts.

Full disclosure. I have no positions in WMT or the other stocks mentioned.

For educational purposes only. Investigate before you speculate.

CVS: Record Q1 for CVS Caremark

CVS Caremark (CVS) announced record earnings and sales as a result of its acquisition last year of the pharmacy benefit management company, Caremark. News release is here. Google’s CVS page is here. Yahoo’s is here. Seeking Alpha has a transcript of the company’s conference call here.

MHS: Medco share buy backs make EPS rise while net income falls

Medco Health Solutions (MHS) used $1 billion in first quarter share buy backs to make its first quarter earnings per share rise while its net income fell 1.7% to $270.2 million from $274.8 million a year ago. While Medco’s first quarter GAAP diluted EPS growth was up only 6.4% on a 16.2% increase in net revenues to a new record, the company reaffirmed its guidance for a 27% to 29% jump in 2008 GAAP diluted earnings per share.

On March 31, MHS had 537.8 million shares outstanding (weighted average), down 7.6% from 582.3 million a year earlier. In its News release, Medco said:

In conjunction with its $5.5 billion share repurchase program, Medco repurchased 21 million shares at a cost of $1 billion during the first quarter, representing an average per-share cost of $47.55. From the inception of the share repurchase program in 2005 through the end of the first quarter of 2008, Medco has repurchased 132.4 million shares at a total cost of $4.5 billion, with an average per-share cost of $34.10.

Such share repurchase programs are seen by investors as indications that companies don’t see great new business opportunities where they can put their money. Long term, this can be bearish for a company. However, speculators like share repurchase programs, which reduce the supply of a company’s stock and make valuation ratios based on shares outstanding look more attractive.

Note that Medco’s generic dispensing rate rose to 63.3% from 58.2%, which is good news for insurers and bad news for the big pharmaceutical companies. It all could be bad news for the retail drug store chains.

Medco’s closest competitors include CVS, ESRX, WAG, LDC, DSCM, RAD and WMT. Their daily charts are here. Point and figure charts are here.

The MHS PnF chart has a bullish price objective of $73 while it’s trading at $49.69. CVS and ESRX also have bullish price objectives while the drug chains have bearish ones.

Full disclosure. I have no positions in MHS or the other stocks mentioned.
For educational purposes only. Investigate before you speculate.