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The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.



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CVS Caremark

(CVS) - Get CVS Health Corporation Report

, the largest pharmacy services provider in the U.S., got a much needed boost to its pharmacy services unit when it landed a $3 billion pharmacy contract that provides mail-order and specialty pharmacy benefit coverage to federal employees, starting in January 2012.

CVS Caremark competes with



and increasingly with


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, Target and others that offer pharmacy services. We have estimated CVS Caremark at $39.55, which would be at parity with its current market price.

We will wait and see what the impact will be on the margins of CVS Caremark's pharmacy benefit management leg of busines before we discern whether CVS won the contract from Medco Heath Solutions because of its aggressive pricing or because it had a superior offering. Meanwhile, here is our analysis of the potential impact of the Federal Employee Program (FEP) contract on CVS Caremark's stock.

The number of mail-order pharmacy claims processed by CVS declined from 74 million in 2007 to 64 million in 2010, raising concerns among investors regarding the outlook of the controversial and thus so far unsuccessful attempt to combine the pharmacy benefit management business of Caremark with CVS's retail pharmacy business.

The FEP contract is expected to reverse the decline in mail-order pharmacy claims and provide a much needed upside to CVS Caremark's pharmacy benefit management business.

Under the FEP, Medco Health Solutions filled close to 9.8 million prescriptions last year.

We currently estimate the number of mail order pharmacy claims processes by Caremark to grow from 64.2 million in 2010 to 84.5 million in our forecast. The FEP contract will bring in an additional 9.8 million prescriptions annually in 2012 and help add a slight upside to our current $39.55 Trefis price estimate of CVS Caremark's stock.

You can drag the graph below to see the impact on CVS Caremark's stock price estimate.

"Revenue per Mail order pharmacy claim processed" chart:

View our detailed analysis for CVS Caremark


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