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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Spekulatius who wrote (13198)	10/14/2001 7:03:54 PM
From: Paul Senior	Respond to of 78525

Yes, CVS maybe could be a buy. I've got it on my watch list, but I'm still having trouble figuring out how to assess the risk/reward or valuation of this company. If I go by earnings and sales growth, the earnings have been marching up over the past few years and sales have doubled in the past 6 years. But so have shares outstanding. And ltd has moved up steadily too. OTOH, p/sales is at a multiyear low and d/e is relatively (imo) low at about .2. They are a big and strong company: "1 out of every 9 prescriptions in this country is filled at a CVS/pharmacy! CVS has the #1 market share in 34 of the top 100 U.S. drugstore markets, more than any other chain. We are #1 in store count, operating approximately 4,100 stores." (quote from their web site) If they can be expected to continue their dominance, if the population is aging and numbers of prescriptions will be increasing, and if this all means that that CVS stock will once again be seen to be attractive (more attractive than it is now), then imho, CVS is now a buy. The play for me being that the stock will regress to higher levels (now about 32-33 & it has traded over 50 at some point in years '98,'99,'00, and '01) I say there's a good chance that $50/sh or higher will recur - guessing maybe within 2 years. OTOH, the p/e, although relatively low, is absolutely high(imo) for a value stock in today's market. Are we or are we not over-stored with these pharmacies? Is the shortage of pharmacists (as reported in the media if I recall) a positive or a negative? These chains seem to be on every block already, each trying to expand even further. And pharmacy sales are an opportunity target for the large grocery chains too. Plus, more and more people (I am guessing here) are tied into HMO's with their own associated pharmacies. (I am assuming the bulk of CVS's sales/earnings are related to pharmacy/prescription services.) So imo, there is a chance that the overall growth (CVS sales/sh) will not translate to management/investor earnings expectations and can not justify the current p/e multiple. Especially if we are going deeper into bear territory where all growth expectations (p/e multiples) are lowered. In other words, I have trouble seeing a margin-of-safety with CVS stock price. If I could resolve these differences in my mind I might be able to come to either a buy or avoid conclusion. -g- For now, I continue the easy path of just watching. Grommit, you reported that you were buying. Can you (or any other thread reader) weigh in now with an opinion on CVS? Paul Senior