CVS Shares Fall 13% Despite Meeting Earnings Expectations

CVS (CVS) - Get Report Wednesday reported a 19% increase in third-quarter profit, meeting Wall Street expectations, but investors still hammered the stock.

At midmorning, CVS shares were off 5 9/16, or 13%, at 37 15/16.

Andrew Wolf, an analyst for

Strong & Stringfellow

, said investors' enthusiasm was cooled by slowing growth. The company had posted stronger earnings growth in previous quarters, pushing the stock higher.

"I think it's overdone -- it's acting like a momentum stock when the momentum investors have pulled the plug," said Wolf, who no longer rates CVS. His firm hasn't done underwriting for the drugstore chain.

For the quarter ended Sept. 25, CVS posted earnings of $121.6 million, or 30 cents a diluted share, up from $102.4 million, or 25 cents a share, a year earlier. Analysts polled by

First Call/Thomson Financial

called for earnings of 30 cents.

Revenue rose 16% in the latest quarter to $4.3 billion from $3.7 billion a year earlier.

The rising profits for the quarter allowed CVS, based in Woonsocket, R.I., to invest further in new stores and relocations while also spending more on new technology and two new businesses:

CVS ProCare

, a pharmaceutical-specialty unit for people needing expensive care, and

CVS.com

, the company's online pharmaceutical unit.

"Our robust sales growth enabled us to accelerate certain of these investments, which we believe will be important drivers of our future growth," Tom Ryan, CVS' chairman and chief executive, said in a statement. "Also, as expected, we are beginning to see significant improvement in free cash flow resulting from improved working capital performance."

By investing in itself, CVS may have risked today's show of disfavor from Wall Street, said Wolf.

"Maybe when investors saw internal investment that has short-term costs but long-term benefits, they do what they are doing," Wolf said.