Management Churn at CVS Caremark - Analyst Blog
02 4월 2012 - 7:00PM
Zacks
CVS Caremark
Corporation (CVS) recently announced a change in top
management. According to the company’s design, effective September
1, 2012, the present EVP and Chief Operating Officer of the
Pharmacy Benefit Management (PBM) business, Jon Roberts will
replace Per Lofberg, the President of the PBM business.
However, Robert will continue to
report to Lofberg who extended his employment agreement with the
company till December 2013. September onwards, Lofberg will serve
as the chairman of the PBM and look after the business strategies
of PBM, new business development, client relationship management
and retention and will directly report to Larry Merlo, the
President and CEO of CVS Caremark.
Rhode Island-based CVS Caremark is
a combination of a PBM as well as retail drug chain. In terms of
contractual arrangements with large plan sponsors, CVS Caremark
holds a leading position in the industry. Currently, CVS Caremark
is ranked among the top three PBMs in the US. The other big players
in this space are Express Scripts (ESRX) and
Medco Health Solutions (MHS). Together, these
three companies control roughly 50% of the market and covers
approximately 240 million prescription drug consumers annually. The
market share can go up to 80% including the contractual
arrangements with large plan sponsors.
However, CVS Caremark’s Pharmacy
Services business has been witnessing significant challenges over
the past several quarters due to the general macroeconomic turmoil
and the recent debt crisis, which adversely impacted consumer
purchasing power. Further, the proposed merger between Express
Script and Medco will consolidate the industry resulting in the
creation of a leader which potentially will hold over one-third of
the market. The merger will cover more than 150 million
prescription drug consumers and 50% of the large employer
market.
We believe that the new management
change decision is a part of CVS Caremark’s strategic efforts to
minimize the impact of the proposed merger. The company is
presently leaving no stone unturned working on this. Jon Roberts in
this regards is expected to come up with several new ideas to
enhance the company’s position even amid the threat of market
cannibalization.
However, uncertainty persists with
the US Federal Trade Commission (FTC) issuing a ‘second request’ to
both Medco and Express Scripts. The FTC is seeking additional
information regarding the pending deal, also supported by the
American Antitrust Institute (AAI). Although both the stalwarts
anticipate successful closing of the deal by next week, it will go
in favor of CVS Caremark if the situation turns around.
Currently, CVS Caremark, Express
Scripts, and Medco are serving large plan sponsors. Given their
size and potential to offer exclusive contracts, over 40 of the
“Fortune 50” largest corporations depend on these three top shots
for PBM services. However, post the Express Scripts-Medco merger,
in terms of covered lives, we anticipate CVS Caremark to
significantly lag the merged entity’s reach.
CVS Caremark currently retains a
Zacks #2 Rank (short-term Buy rating). However, over the long term,
we are Neutral on the stock, at par with Medco and Express
Script.
CVS CAREMARK CP (CVS): Free Stock Analysis Report
EXPRESS SCRIPTS (ESRX): Free Stock Analysis Report
MEDCO HLTH SOL (MHS): Free Stock Analysis Report
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