So much for breaking the economic losing streak: for a moment, we were on the verge of breaking the two-week trend of economic news coming in well below expectations: personal income was inline, and the University of Michigan Consumer Setniment number for May, at 74.3, was higher than anticipated.
Then pending existing home sales for April came in WAY BELOW expectations, down 11.6 percent compared to the prior month vs. expectations of down about 1 percent.
Bob Toll said his orders were up the other day, but housing analyst John Burns surveys several hundred home builders every month, and business remains terrible. Burns noted that there was no urgency to buy, and that buyers were still worried prices were going to fall further.
Call it the housing conundrum: we have the best affordability in our lifetime, a modestly growing economy, and the lowest new home sales in our lifetime.
The supply overhang doesn't help, as Miller Tabak's Adrian Miller noted this morning.
- New homes 6.5 months
- Existing 9.2 months
- Shadow inventory tied to foreclosures: 3.87 million
Forget the CVS win, its the generic drug tidal wave that is pushing PBMs: CVS up 3 percent to a multi-year high, Medco down 12 percent as Caremark (the pharmacy benefit manager (PBM) arm for CVS) won the mail-order and specialty contract for the federal employee program held by Medco. This contract has been said to be worth $3 billion a year.
The impact to EPS is thought to be perhaps 1 to 2 percent, but it is an important win for the CVS management team.
But the larger story is that PBMs are set to benefit from a huge generic drug wave, the main one being Pfizer's Lipitor (about $7 billion in annual sales), but also including Lilly's Zyprexa (about $2.5 billion). Generics have higher profit margins for PBM.
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