Goldman Has Buy On CVS (CVS)

Goldman Sachs has a Buy rating and a $42 price target on shares of CVS Caremark Corporation CVS. In a note to clients, Goldman writes, "When CVS reports earnings on February 3rd, we expect the focus will be on the path through a choppy 2011 to a big payout in 2012. We advocate owning this name for the 2012 earnings growth associated with harvesting infrastructure investments in the PBM, accretion associated with the acquisition of Aetna's PBM business, and the generic wave. CVS will shed light on the path to the payout, and, based on management comments, will likely take a conservative tack. Specifically, we expect the firm to prioritize investing over harvesting at the PBM, and likely stay guarded about contracts up for renewal in the PBM selling season. Our 2011 forecast is driven by fundamental, bottom-up assumptions, but to the extent that guidance proves tepid, we are willing to persevere en route to a big 2012 payout." Goldman goes on to say, "We rate both CVS and WAG Buy, and see strong potential on a 12-month basis. We continue to favor WAG, which is subject to all of the same industry drivers, but is harvesting the benefits of slowing growth today; we remain sharply above consensus for 2011. For CVS, our 12-month $42 target is based on 60% risk/reward (P/E), 20% DCF, and 20% sum-of-the-parts. Downside risks include share loss to dollar stores, drug cost/reimbursement pressure, PBM execution. For WAG, our $46 12-month target is based on 75% risk/reward and 25% DCF analysis. Risks include flu, sluggish top-line recovery, and reimbursement dynamics." Shares of CVS gained 11 cents yesterday to close at $35.71.