Is This Healthcare Company an Outperform?

With CVS Caremark (NYSE:CVS) recently providing a strong outlook and trading near all-time highs, is the healthcare company an OUTPERFORM, a WAIT AND SEE, or a STAY AWAY?

Let’s analyze the stock with the relevant sections of our CHEAT SHEET Investing Framework:

E = Earnings Are Increasing Quarter over Quarter

The largest integrated pharmacy company in the United States announced last week that it expects adjusted profit for 2013 to come in at $3.84 to $3.98 per share, up 13 percent to 17 percent from last year and topping the average analyst estimate of $3.82 per share. The forecast assumes the repurchase of $4 billion in shares.

Obamacare and the aging population of the country were cited as positive factors. “Health care is going through a period of intense change, change that will be accelerated by the implementation of the Affordable Care Act as well as underlying demographic shifts, advances in technology and changes in consumer and patient behavior,” explained Larry Merlo, president and chief executive officer. He also added, “You’ve got 10,000 baby boomers becoming eligible for Medicare every day now. The change is upon us, and it will evolve over the next several years.”

The guidance continues momentum seen in the company’s latest quarterly results. In November, CVS reported that third quarter net income increased 16.7 percent to $1.01 billion (79 cents per share), compared to $868 million (65 cents per share) a year earlier. Adjusted earnings surged 21.4 percent to 85 cents per share, beating the consensus by one penny. The company’s forecast was for earnings of 81 cents to 83 cents per share.

CVS received a boost in the quarter due to the friction between Walgreen (NYSE:WAG) and Express Scripts (NASDAQ:ESRX). Merlo explains, “The retail pharmacy business continued to capitalize on the market disruption resulting from the impasse between two of our competitors, and our retention of the prescriptions we gained during that impasse has been strong since their dispute was resolved in mid-September. Given what we have seen to date, we are optimistic that we will exceed our initial retention goal for the fourth quarter and now expect to retain at least 60 percent of the prescriptions gained during the impasse.”

Earnings for CVS have been on the upswing all year. For the second quarter, earnings came in at 81 cents per share, an increase from 65 cents in the first quarter. Furthermore, it has beaten analyst estimates in 7 of the last 8 quarters.