Lehman Analyst Upgrades CVS

A Lehman Brothers analyst upgraded drugstore chain CVS ( CVS) on Tuesday, saying the company has gradually recovered from past operational problems.

Expansion and the current recovery will help CVS attain steady earnings growth, said the analyst, Meredith Adler, who upgraded the company to overweight from equal weight. She set a new price target of $32, up from $29. She retained her 2003 EPS estimate of $1.95 and her 2004 EPS expectation of $2.15. Both estimates are above analysts' consensus estimates of $1.92 and $2.11, respectively.

Various technology issues, a pharmacist shortage and poor store operational management plagued CVS in 2001, but the company is healing those wounds now, Adler said. Also, the company is expanding "at a manageable pace" while maintaining and remodeling current stores, she said. "We have confidence that CVS can manage its operations and expense structure to maintain steady earnings growth despite a challenging external environment," she said.

Adler also believes the company will manage expenses well in the next few years. Additionally, though the stock traded lower after rival Walgreen ( WAG) released weak third-quarter results, she thinks Walgreen's problems were company-specific.

Shares of CVS were up 3.3% at $27.29 Tuesday morning.

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