CVS Caremark Corporation (CVS) recently announced that its previously declared cash tender offer to repurchase $1 billion of 6.302% notes has expired. As per the final tabulation, notes worth $957 million have been tendered.
CVS exited the last reported quarter with cash and cash equivalents of $1.7 billion, up from $1.42 billion at the end of fiscal 2010. Moreover, the company generated over $1.5 billion in free cash flow during the quarter and $3.9 billion year-to-date. CVS expects to generate free cash flow of $4−$4.2 billion in 2011 with potential for further growth in 2012 and beyond. Total long-term debt at the end of the quarter was $10.2 billion as opposed to $9.8 billion at the end of fiscal 2010.
Strong cash flow has enabled management to return significant value to the shareholders. The company repurchased 16.3 million shares for approximately $579 million under its $2 billion share repurchase program. At the end of the quarter, the company had approximately $450 million remaining under its existing authorization, which was announced back in 2010, and is well on track to complete the program by year end. Additionally, in August this year, the board authorized a new share repurchase program of up to $4 billion.
Subsequent to this authorization, CVS entered into a $1 billion accelerated share repurchase agreement, under which it repurchased 25.7 million shares. Thus, during the quarter, the company repurchased a total of 42.1 million shares at a cost of approximately $1.6 billion. Year to date, the company repurchased 69.5 million shares for approximately $2.5 billion. The company intends to use the remaining $3 billion in the 2011 authorization for future repurchases in 2011 and beyond. So, between dividends and share repurchases, CVS has returned more than $3 billion to shareholders in the first 3 quarters of 2011.
CVS is adopting several strategies to ensure consistent growth in its business. However, the tough competitive landscape remains a primary concern, where the proposed Medco (MHS) –Express Script (ESRX) merger is expected to throw more challenges for CVS in the Pharmacy Services segment. CVS Caremark currently retains a short-term Zacks #2 Rank (Buy). However, over the longer term, we remain Neutral on the stock, at par with its peers.
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