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) -- There was initial skepticism about the viability of

CVS Caremark's

(CVS) - Get CVS Health Corporation Report

business model, which integrates retail with pharmacy benefits management.

But the company has turned around the outlook of its PBM business within a year by winning multiple high profile contracts and emerging as the second largest player in the space.

It also has keenly leveraged its 7,400-strong drugstore network to unlock the full potential of the PBM business through differentiated and unique offerings that it calls its "integration sweet spots" such as Maintenance Choice and Pharmacy Advisor.

Also, CVS Caremark's core retail business continues to be as robust as ever and is benefiting from the dispute between




Express Scripts


and margin expansion as more prescription drugs go generic this year.

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Here we look at six reasons why we are more optimistic about CVS Caremark compared to rivals Walgreen,

Rite Aid

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Express Scripts



View our detailed analysis for CVS Caremark




PBM Turnaround

CVS Caremark aggressively expanded its PBM business in 2011 by winning multiple high-profile contracts with clients including







Universal American

and quickly turned around the company's outlook for the business.

Last quarter, its PBM revenues grew 32% as it processed 17% more mail choice and 26% more pharmacy network claims compared to the year before. It benefited from its leading market share in Medicare Part D prescription business as well as high growth in specialty pharmacy and strong adoption of its Maintenance Choice plans.


Leading Presence in Medicare Part D Plans

Over the past year, CVS has gradually consolidated its PBM market share in the federally-sponsored Medicare Part D prescription business (primarily focusing on Americans aged 65 and older) through acquisitions.

In 2012, CVS Caremark's Part D share has grown by 2.1 million persons enrolled, primarily due to its contracts with

Universal American





, plus organic growth of 207,000 enrolled. It now serves more than 4 million, just marginally behind


(UNH) - Get UnitedHealth Group Incorporated Report

, which lost almost half a million enrolled last year.

Medicare Part D is set to get a boost from the aging U.S. population and health reforms that would significantly increase prescription utilization and help plug the Medicare Part D coverage gap. The segment is expected to grow in double digits annually over this decade. The U.S. government is rapidly emerging as the major payer for prescription drugs. It is expected that Medicare and Medicaid could be paying for as much as two-thirds of all U.S. prescriptions by 2020, up from about one-third today, indicating a huge opportunity for CVS Caremark.


Maintenance Choice 2.0: Revitalized With an Integrated Capability

The company is also benefiting from its integrated offering, Maintenance Choice, which extends the mail-order benefit for Caremark's PBM members, enabling them to pick up maintenance medications at any CVS retail pharmacy at the same price as mail-orders with no increase in co-pay or payer pricing.

By the end of 2011, the program had 10 million members enrolled with strong client adoption rates. It has now upgraded to Maintenance Choice 2.0 and expects to add tens of millions more clients in the next two years.

The flexible mail/retail option becomes even more attractive because of CVS's focus on Medicare Part D business. The mail order utilization is relatively low with Medicare Part D and thus Maintenance Choice would bring significant prescriptions business to its 7,400-strong drugstore network.


Pharmacy Advisor 3.0

CVS also seeks significant customer growth through its Pharmacy Advisor program, an offering that mixes its retail and PBM capabilities to connect pharmacists, patients and physicians in real time to identify and address patient nonadherence and gaps in care, reducing overall health care costs.

The condition-based program currently focuses on diabetes with 12 million members, including 700,000 diabetes patients, and is likely to expand to 13 different conditions by 2013, including cardiovascular disease in 2012, followed by asthma, depression, cancer, osteoporosis, GI disorders, rheumatoid arthritis, multiple sclerosis and chronic kidney disease by 2013.


Growth in Specialty Segment

CVS has also strengthened its position in the Specialty Pharmacy business, a segment made up of complex medications to treat such serious diseases as cancer by leveraging its integrated retail-pharmacy services business model and MinuteClinics to deliver more value to its customers. Specialty pharmacy is currently a $15 billion business for CVS Caremark, having grown at 17% annually over the past two years.


Benefit From Express-Walgreen Fallout

CVS Caremark has significantly benefited from the fallout last quarter gaining millions of new prescriptions as Express members looked for non-Walgreen pharmacies to fill their prescriptions, and ended up at CVS stores as the most convenient alternative. CVS's retail segment revenues increased 10% last quarter, driven by 8.4% higher same-store sales.

As a result, CVS has raised its full-year guidance, and it has now turned more aggressive in a bid to retain these new customers, hoping that the more time that Walgreen takes in renegotiating with Express Scripts, the stickier these new customers might become as they continue to frequent CVS drugstores and develop a relationship with its pharmacists. CVS could tap up to 20 million transferred prescriptions out of the Express-Walgreen impasse if it continues through 2012.

We have

a $47.40 price estimate

for CVS Caremark stock, a 5% premium to the current market price.



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

This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.