CVS Beats Medco to Win PBM Deal - Analyst Blog
May 31 2011 - 8:45AM
Zacks
CVS Caremark (CVS)
recently announced that it has won a three-year contract to provide
integrated pharmacy benefit services for the Blue Cross and Blue
Shield Government-wide Service Benefit Plan or Federal Employee
Program (FEP).
Earlier, Medco Health
Solutions (MHS) served this solution to Blue Cross and
Blue Shield. The new contract will be effective from January 2012.
CVS expects the FEP contract to bolster its Pharmacy Benefit
Management (PBM) segment, which has been under pressure over the
past few quarters.
On the other hand, loss of the FEP
contract is a big blow to Medco’s PBM business as it generated
nearly $3 billion in annual revenues (including approximately 9.8
million mail order prescriptions) or about 4.5% of the company's
total sales in 2010. Further, contribution of the contract to the
company’s 2011 earnings guidance is around 10%. Share prices
of Medco dipped 9% on Friday, May 27, 2011, following the loss of
the FEP contract. However, Medco believes that loss will not have
any impact on its fiscal 2011 results.
Since 1993, CVS has been serving
the retail PBM program including network contracting and management
of a complete set of highly-customized clinical programs of FEP.
Under this new contract, the company will also provide mail order
pharmacy services and specialty pharmacy services to more than 5
million federal employees, retirees and dependents covered under
FEP.
After delivering sluggish
performance in past several quarters, CVS’ PBM segment posted
revenues of $14 billion, reflecting an 18.4% year over year
increase during the first quarter of fiscal 2011. The significant
upside in revenues was primarily attributable to the 12-year
contract with Aetna (AET), under which CVS
provides PBM services to Aetna customers. Given the new deal with a
high-valued client like FEP, we expect CVS to mark substantial
improvement in this segment.
Moreover, the recent acquisition of
the Medicare Part D business is a good move by the company to boost
its PBM segment further. We also believe the healthcare reform will
open up a big opportunity for the company. We believe all these key
strategies will bode well with CVS’s future PBM growth. We are
currently maintaining our Neutral recommendation on the stock.
AETNA INC-NEW (AET): Free Stock Analysis Report
CVS CAREMARK CP (CVS): Free Stock Analysis Report
MEDCO HLTH SOL (MHS): Free Stock Analysis Report
Zacks Investment Research
Aetna (NYSE:AET)
Historical Stock Chart
From May 2024 to Jun 2024
Aetna (NYSE:AET)
Historical Stock Chart
From Jun 2023 to Jun 2024