CVS Jumps After Beating Earnings Estimates - TheStreet

Updated from 10:14 a.m. EST

Shares of

CVS

(CVS) - Get Report

, the big U.S. drugstore chain, rallied Tuesday after the company posted a 28% increase in earnings, exceeding Wall Street's estimates, and disclosed plans to open 400 to 450 new stores this year.

By early afternoon Tuesday, CVS stock was up 3 11/16, or 10%, at 40 1/8. (It closed up 3 9/16, or 9.8%, at 40.)

CVS, which is based in Woonsocket, R.I., said a strong rise in sales helped fourth-quarter net profits climb to $186.3 million, or 46 cents a diluted share, compared with $145.8 million, or 36 cents a diluted share, a year earlier.

Wall Street had been expecting earnings of 44 cents a share, based on a survey of 14 analysts conducted by

First Call/Thomson Financial

.

"They had really strong sales growth; same-store sales rose by 12.5%," said Eric Bosshard, an analyst at

Midwest Research

, adding that strong prospects allowed the company to raise its estimated earnings by a penny, to 47 cents a share in the first quarter and to $1.79 a share for the full year.

Net sales for the quarter rose 24% to $5.2 billion, up from $4.2 million in the year-earlier quarter, which CVS noted was one week shorter.

Pharmacy sales represented 58% of total sales for the quarter, while third-party prescription sales were 87% of pharmacy sales.

"We achieved accelerating comp-store sales growth, improving gross margin trends, decreasing sales, general and administrative expenses as a percent of sales and record earnings all while continuing to make investments that will yield accelerating growth in the future," Tom Ryan, CVS chairman and chief executive, said in a statement.

CVS said it had opened a record 445 stores last year, 49 of which were opened in the fourth quarter. This year, the company said it planned to add up to 450 new stores to its current chain of 4,098 stores. These plans include the start of an aggressive expansion program in Florida, home to a number of the top 100 drugstore markets, the company said.

But Bosshard, whose firm does not do any underwriting, sounded a cautionary note, saying he was currently maintaining his market performer rating, the equivalent of a neutral, on CVS because of industry concerns about pricing pressures and market saturation.

CVS also noted that it expected free cash flow to increase continually over the next few years. The company generated $165 million in positive free cash flow in 1999 and expects to generate a minimum of $300 million in 2000.

In January, CVS reported a 12.8% rise in sales to $1.4 billion, compared with the year-earlier period.