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Ticker Shock: Four Reasons CVS Writes a Strong Prescription


Tuesday's top stories and stocks with potential to move.


Last night I felt like I was on Gilligan's Island -- that's how long my commute home last night took. The other downer was that I most definitely wasn't sitting next to Ginger or Mary Ann.

Asian stocks were mixed overnight. The Hang Seng ended down 0.05% and the Nikkei rose 0.22%. Meanwhile, European stocks were lower earlier this morning. And here in the US, we're currently trading lower.

Here's what I'm looking at today:

CVS Caremark (CVS):
When mom said "don't do drugs," she meant the illegal kind. That's good, because CVS's second-quarter results looked pretty sweet.

Excluding charges, it put up a respectable $0.65, which was $0.01 north of expectations. It appears it beat on the revenue line, too. And to boot, its CFO offered up the following in the release:

"Given our strong performance year to date as well as our optimism for the rest of the year, we're raising our earnings guidance and narrowing the range. We now expect to deliver Adjusted EPS from continuing operations of $2.59-$2.64 for the year, up from our previous guidance of $2.55-$2.63. GAAP EPS from continuing operations is projected at $2.41-$2.46, up from our previous guidance of $2.37-$2.45."

My thoughts:

1. It's nice to see the outlook get a little goose and I suspect it will be rewarded by the investment community for that. We could see estimates cranked a bit higher in the coming days as a result.

2. If it can keep the ball rolling and knock through its yearly high, I think the mid $40s could be just around the corner.

3. I don't want to get too giddy, however, because the competition is very tough. You've got all the major drugstores plus Wal-Mart (WMT) battling for foot traffic. The road CVS is traveling will be a bumpy one.

4. I believe the stock gets (and deserves) a bump up in today's session. At the same time, I'm a bit more partial toward Walgreen (WAG).

Pulte Homes (PHM):
So how are the homebuilders doing with Wall Street in party mode?

Check out Pulte's second quarter. In the period, it lost a hefty $189.5 million.

In the release the company points out: "The second quarter 2009 net loss includes pre-tax charges of $119.3 million, related to inventory impairments and other land-related charges."

Big deal. Although since its revenue line came in at $678.6 million (well ahead of expectations), it probably deserves some kudos for that.

Some other thoughts:

1. Its CEO offered up the following in the release. It contains a number of positives that shouldn't be glossed over:

"Although year-over-year performance numbers for the second quarter show the market stress, sequentially, we have seen some positive signs as net new orders increased 11% on 9% fewer communities, cancellation rates were stable and our unit backlog increased by 28%, or almost 900 homes. We also generated positive cash flow from operations in the quarter, and ended the period with $1.6 billion in cash, even after using approximately $180 million of cash to reduce outstanding debt."

2. It also indicated in the release that August 18 will be the special meeting of shareholders to vote on the planned combination with Centex (CTX). Linking up with Centex would be a good thing, and I hope all goes smoothly.

3. I hate to put a damper on the party, but housing isn't out of the thicket yet. Let's not forget the large numbers of homes, new and existing, that are still out there competing with new homebuilders like Pulte. And don't forget about the high number of foreclosures out there, either. Other areas of concern include higher fuel prices and the prospect for higher interest rates.

4. With all that in mind, I have to admit I'm a bit fond of the stock here in the low double-digits as I see light at the end of the tunnel.

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No positions in stocks mentioned.

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