Bitter Pill for Pharmacy Giants

As first reported by TheStreet.com back in April, Caremark issued its 2005 stock-option awards on March 1 -- when the stock hit its lowest closing price of the year. The company claimed that it had simply followed a routine practice of granting options at its first-quarter board meeting. But the company has never followed a set schedule of issuing options in the past.

Rather, a study by Gradient Analytics shows, Caremark has often granted stock options just before the stock started climbing. Before 2005, the study shows, the company, in fact, granted options in March only once. Those 2000 grants, priced at a year-long low of just $3.88 a share, have since come under scrutiny.

For its part, Caremark has explicitly denied that any backdating occurred. But even some former Caremark fans have started to lose their faith in the company.

Notably, Wall Street Strategies analyst Brian Sozzi last week downgraded Caremark due to his uneasiness about the company's disclosures.

"There have been many inquiries into the company's business practices," he noted. "We can't help but to think that management has been less than 100% transparent regarding internal happenings, and that a big shoe is about to drop in the future. (Thus), we are lowering our rating to hold from buy, citing growing uncertainty regarding the company's corporate culture."

Despite everything, Caremark's stock has held up rather well. The shares climbed a nickel to $49.30 on Tuesday and continue to trade near the high end of their 52-week range.