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CVS Caremark: Restructuring Debt, Mulling Dividend Increase

Stocks in this article: CVS

"Other than the increase to the maximum tender offer amount, all other terms and conditions of the tender offers, as previously announced, remain unchanged. Dave Denton, executive vice president and chief financial officer stated: "Through this transaction as well as our recent debt issuance, we are taking advantage of the current favorable interest rate environment. This debt refinancing will enhance our long-term debt structure and decrease our interest expense going forward."

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There's more good news for shareholders, but first let's look at a one-year chart of the share price of CVS as well as its PE value, which has risen in tandem with the price-per-share. CVS Chart CVS data by YCharts

The valuation of CVS stock looks attractive with a forward (one-year) PE of around 12 and an attractive price-to-earnings-growth (PEG) ratio (five-year expected) of only 1.04. The dividend seems paltry to me at only a yield-to-price of 1.38%, but that's where this story and this stock becomes more interesting.

Argus Research recently reported its opinion that CVS may be prepared to raise the dividend by up to 15% at the upcoming analyst meeting Thursday. Argus apparently believes the outcome of the meeting may move CVS's stock price. Argus and Cantor Fitzgerald maintain a "buy" rating on CVS.

Will CVS raise itsdividend Thursday at the analyst meeting? I think there's every reason to believe that it will -- if it doesn't, shares may plummet in disappointment. If you're interested in taking a position, you may want to nail down a few shares before the meeting and the rest afterwards.

Nineteen analysts have a consensus earnings estimate on this quarter (ending this month) of $1.10 per share, which would be a 23.6% increase over the year-ago quarter. The consensus estimate on revenue for this quarter is over $31 billion.

Expectations for CVS are reasonable, management appears to be prudent and proactive and the twin investment themes of ongoing bottom line growth and improving debt maintenance bode well. Do your own careful due diligence before investing, and watch your trailing stops if you own the stock.

At the time of publication the author had no position in any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

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