CVSpharmacy

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CVS/pharmacy
Lan Nguyen Evonne Mick Autumn Jones Joyce
Kabayadondo Julia Jasinski
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Who we are

• CVS Consumer Value Store
• 40 years experience
• More than 5,000 stores
• In 36 states
• 13 regional offices

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Our Mission

• OUR MISSIONWe will be the easiest
  pharmacyretailer for customers to use.
• OUR VISIONWe help people livelonger, healthier,
  happier lives.
• OUR VALUESRespect for individualsIntegrityTeamw
  orkOpenness to new ideasCommitment to flawless
  executionPassion for extraordinary customer
  service

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Success of CVS

• 1963 The first CVS store, selling health and
  beauty products, opens in Lowell, Massachusetts.
• 1974 CVS hits the 100 million in sales
  milestone.
• 1985 CVS hits the 1 billion in sales milestone.
• 1997 CVS acquires Revco Pharmacy (2,552 stores)
  chain the largest and most successful
  acquisition in the history of the U.S. retail
  pharmacy industry.

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Success of CVS

• 1999 CVS launches CVS.com, the first fully
  integrated online pharmacy in the U.S.
• 2004 CVS Launches online photo services.
• 2004 CVS acquires 1,260 Eckerd Stores and
  Eckerds PBM/Mail-order pharmacy business

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The Executives

• Thomas M. Ryan
• President and CEO since May 1998.
• Salary 4.80M

David B. Rickard Vice President, CFO since
September 1999
Larry J. Merlo Executive Vice President, Stores
of CVS Corporation since April 2000
Private Company, 0.8 insider ownership
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CVS Major Product Groups

• Prescription Drugs
• 70, 643.16
• General merchandise and other 15, 137.82
• Over-the-counter personal care
• 10, 91.88
• Beauty Cosmetics 5, 45.94
• All numbers in millions of dollars

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Product Division

• Prescription Drugs The sale of prescription
  drugs makes up the bulk of revenue for CVS.
• General Merchandise and Other This sales
  segment includes seasonal merchandise, greeting
  cards, convenience foods and photo processing. We
  were the first with in-store digital processing,
  the first to offer wireless camera phone digital
  printing, the first to launch a marketing
  alliance with a major camera phone manufacturer
  (Nokia), and now we are first to offer online
  digital prints with no fees.
• Over-the-counter Personal Care This segment
  includes over-the-counter medications and items
  such as toothpaste and floss.
• Beauty and Cosmetics This category includes
  products such as lotion, makeup, and nail polish.
  

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Financial Analysis of CVS

• Market Capitalization VS Sales Division

• Walgreens 23 at 39,881.301
• 2. Medco Health Solutions, Inc.
• 21 at 35,189.301
• 3. CVS 19 at 32,957.898

1. Walgreens 41 at 46,846.117 2. CVS 20 at
22,309.94 3. Caremark RX. 18 at
20,018.574 All numbers in millions of dollars
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Financial RatiosGrowth Ratios

• Growth Ratios Good

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Price Ratios

• Price Ratios Poor (due to stock split on
• June 7, 2005)

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Profit Ratios

• Profit Ratios Fair

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Financial Condition Ratios

• Financial Condition Ratios Very Good

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Investment Ratios

• Investment Ratios Very Good

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Management Efficiency Ratios

• Management Efficiency Ratios Fair

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Overall

• Financial Ratio Very Good
• Investment Ratio Very Good
• Growth Ratio Very Good
• Profit Ratio Fair
• Management Efficiency Ratio Fair

• Price Ratio Poor

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Current Price, Market Cap Beta
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Holding Period Return

•  

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Free Cash Flow and Cost of Equity
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Required Rate of Return (Ke)
Discounted Cash Flow Model
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Required Rate of Return( Ke)
Constant Growth Dividend Model
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Required Rate of Return (Ke)
Capital Asset Pricing Model
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Stock Price

• Based on the DCF Model v. the CAPM Modelthe
  stock is underpriced.

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Market Efficiency

• Company Specific News
• On April 5, 2004, the Company announced that it
  would acquire approximately 1,260 Eckerd drug
  stores

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Market Efficiency

• Industry Specific News
• FRIDAY, May 27 (Health Day News) -- The U.S. Food
  and Drug Administration has approved a drug to
  treat a common complication of chronic kidney
  disease.
• Weak form - good news
• CVS shares were at 54.97 on May 26th and 54.85
  on May 31st. May 18th through the 27th CVS share
  prices were slightly higher than the month-end
  price, ranging from 55.00 to 54.96.

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Risk Analysis
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Cost of Capital
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Capital Structure
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Debt Ratios
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MM Proposition
The optimal capital structure (Wd) is achieved
when the firm value is maximized and the cost of
capital minimized. The optimal capital structure
for CVS is at the minimum. The minimum is at a
debt ratio of 0.4612 and a WACC of 0.0223.
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Five Year Price Index
Stock split occurred on June 7, 2005.
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CVS As A Whole

• Strengths
• Eckerds Acquisition
• High EPS compared to the SP 500
• High sales compared to the SP 500
• High current P/E ratios compared to the SP 500
• Higher return on equity, assets, and capital
  5-year average than the SP 500
• Higher net profit margin compared to the industry
  average
• Lower debt/equity ratio than industry average
• Growing dividends and stock price under the
  Holding Period Return
• Higher interest coverage
• Low beta
• Low insider ownership
• Low costs

• Weakness
• Low sales and EPS compared to the industry
• Low P/E ratios compared to the industry
• Low net profit margin compared to the SP 500
• WACC unstable due to Eckerds acquisition
• Low revenue per employee
• Low inventory turnover ratio

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Conclusions

• Analyst Recommendation Moderate Buy
• Based on 5yr Price index, good financial
  condition, low bets, high EPS, and the innovative
  technologies, we recommend that investors BUY!!!!

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• The End !