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CVS Embraces Obamacare as Potential Profit Boost

Harrison McClary | Bloomberg | Getty Images

CVS Caremark is looking at changes in U.S. healthcare as an opportunity to serve more customers, whether they are picking up prescriptions, getting them through the mail or stopping by an in-house MinuteClinic for a checkup.

The company, formed when drugstore chain CVS bought pharmacy benefits manager Caremark in 2007 in a $27 billion all-stock deal, outlined its strategy during a meeting with analysts and investors in New York Thursday morning.

For 2013, CVS expects to earn $3.84 to $3.98 per share on an adjusted basis. Analysts, on average, were expecting $3.82, according to Thomson Reuters I/B/E/S.

CVS also said its board approved a 38 percent increase in the company's quarterly dividend, bringing the payout to 22.5 cents per share.

The company said its earnings forecast assumes that it will repurchase $4 billion of its shares during 2013. CVS has repurchased $3.5 to $4 billion worth of its stock annually since 2010.

The coming year stands to be a busy one for the healthcare sector as the United States prepares for 30 million people to join the ranks of insured patients under the Affordable Care Act, or "Obamacare," starting in 2014. At the same time, the large population of aging baby boomers and rising demand for specialty drugs stand to be opportunities for companies such as CVS.

The industry is already seeing rapid growth in the number of people signing up for Medicare Part D prescription plans.

"You've got 10,000 baby boomers becoming eligible for Medicare every day now," CVS Chief Executive Larry Merlo said, referring to the health insurance plan for seniors. "The change is upon us and it will evolve over the next several years."

Merlo says CVS can play a bigger role in getting patients with chronic conditions to stick to their drug regimens, which can save billions of dollars.

About half of Americans suffer from one or more chronic diseases; among those who are newly diagnosed with a chronic disease, such as diabetes, almost half fail to stick with their drug regimen in the first year, Merlo said.

"The lack of medication adherence is costing our healthcare system some $300 billion a year in unnecessary costs," he said.

While CVS prepares for next year, its main competitors have come under pressure.

Drugstore leader Walgreen is trying to lure patients back to its stores after reaching a new contract with Express Scripts Holding, CVS Caremark's largest competitor in the pharmacy benefits manager (PBM) business.

In November, Express Scripts said its business would come under pressure in the weak economy, leaving analysts to question that company's strategy in the wake of its acquisition of another PBM, Medco Health Solutions.

Merlo declined to comment on whether CVS' strategy would include any acquisitions though "bolt-on" deals to support its retail or PBM units.

CVS runs about 650 MinuteClinic healthcare clinics, which have seen more patients come in. The day after Thanksgiving was the clinics' busiest day to date, with 19,000 visits on Nov. 23. CVS expects more than 3 million visits to MinuteClinic in 2012.

Eight of the more than 7,400 CVS stores remain closed after being significantly damaged by Hurricane Sandy. Six should reopen by the end of 2012 and the rest may reopen by the end of the first quarter of 2013, Merlo said.

CVS previously said costs associated with the massive storm would reduce its fourth-quarter earnings by as much as 1 cent per share.

Its third-quarter profit came in a penny ahead of analysts' expectations, with growth in both the PBM business and the drugstore chain.

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