Moody's Upgraded CVS's Unsecured last week. I found some similarities with Rite Aid initiatives (made public and personal theories), which may signal a bias change as RAD gets closer to improving its bottom line. My opinion is that it'll take 6 months before debt rating is upgraded (by then 10K and Q1's 10-Q will be released).
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CVS Corp Sr Unsec Raised To A2 By Moody's
New York, February 27, 2001 -- Moody's Investors Service raised the ratings of CVS Corporation based on the company's leading marketposition, geographic diversity, and solid and improving debt protectionmeasures. The rating outlook is stable.
Ratings upgraded:
Senior unsecured bank agreement and MTN program to A2 from A3.
Commercial paper to Prime-1 from Prime-2.
CVS has become the largest drugstore chain, with stores blanketing the eastern U.S. The company has the number one share in about 34 of the 100 largest drugstore markets, despite intense and growing competition, especially from other discounters and supermarkets. Growth has been achieved through new store openings and acquisitions. CVS is an acquirer in this consolidating industry, buying companies such as Revco and Arbor in the same or adjacent geographic areas. Both acquisitions were equity funded and yielded synergistic cost savings. In September 2000, the company's CVS ProCare subsidiary bought the assets of Stadtlander Pharmacy of Pittsburgh for $124 million, enhancing ProCare's franchise as the leading specialty pharmacy company serving special prescription needs. Additional growth could come from entering the many Western markets in which CVS has no presence and from boosting comparable store sales via efforts such as the recent launch of a loyalty program. New growth channels, however, could come with higher business risk.
Debt protection measures are healthy and improving. Information technology initiatives have bolstered CVS's already high productivity, and facilitated the reduction of operating costs to offset the pressure from third party payers on pharmacy gross profit margins. Operating profit rose from 6% to 7% in fiscal year 2000, and operating cash flow funded the company's aggressive capital expenditures.. At fiscal year end 2000, cash of $337.3 million covered about 29% of on-balance sheet debt of $1.15 billion. (The company also has substantial off-balance sheet leases.) Moody's expects that debt protection measures will remain solid, despite any share repurchases under CVS's authorization.
CVS's complex corporate structure and contingent liabilities are rating factors. While debt is at parent CVS, an intermediate holding company owning non-Revco and non-Arbor operating subsidiaries has significant contingent liabilities from guarantees of leases for former stores. CVS is indemnified by the purchasers of these obligations. CVS estimated the net present value of settlement costs at about $1 billion at January 1, 2000, in the unlikely event that every purchaser becomes insolvent. Headquartered in Woonsocket, Rhode Island, CVS Corporation is the country's leading pharmacy, with annual sales of over $20 billion.
SOURCE: Moody's Investors Service
Source: investor.cvs.com |
