NEW DIRECTIONAL CALL PLAYS

CVS Caremark Corp. - CVS - close: 76.70 change: +0.77

Stop Loss: 74.65
Target(s): to be determined
Current Option Gain/Loss: Unopened
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
CVS is in the services sector. The company provides integrated pharmacy healthcare services in addition to running a drug store chain with over 7,600 locations. CVS' largest rival is Walgreen's with 8,650 locations.

The company's most recent earnings report was mixed. CVS delivered a profit of $1.02 per share. That missed estimates by a penny. Revenues came in above expectations at $32.69 billion in the first quarter. Wall Street appears to have accepted CVS's "blame it on the weather" excuse. Last month CVS also disclosed they had finalized a settlement with the SEC over events dating back to 2009 that stemmed from its acquisition of Longs Drug Stores in 2008. In the settlement CVS did not have to admit any wrongdoing and does not have to restate any earnings reports. They're happy to put the ordeal behind them and for investors it's old news.

More importantly the company is seeing strong growth in its PBM business. Its pharmacy services segment saw revenues climb +10.3% to $20.2 billion in the second quarter. Management said CVS is "beginning to develop integrated products for both hospitals and health plans."

They're also growing into a broader healthcare provider with the retail-based clinic subsidiary MinuteClinic. According to CVS' website, "MinuteClinic launched the first retail medical clinics in the United States in 2000 and now has more than 800 locations in 28 states. MinuteClinics are staffed by nurse practitioners and physician assistants who utilize nationally recognized protocols to provide treatment for common family illnesses, skin conditions and injuries, administer vaccinations, conduct physicals and wellness screenings, and offer monitoring for chronic conditions seven days a week without an appointment, including evenings and holidays."

American's growing acceptance of the MinuteClinic for quick healthcare services will grow. Long-term CVS will benefit from an aging population more dependent on their prescriptions. Plus, CVS will benefit from the growing number of new Americans being covered under Obamacare. Payments for these services will be covered by health care plans, Medicaid, and now the Affordable Care Act mandate.

Wall Street is happy with its steady growth. The most recent earnings report showed profits rising 18% year over year for the fifth consecutive quarter of double-digit earnings growth.

More aggressive traders may want to buy calls now. The all-time intraday high is $77.13. I am suggesting a trigger to buy calls at $77.25. We're not setting a bullish exit target yet but the Point & Figure chart for CVS is bullish with a $102 target.

Trigger @ $77.25

- Suggested Positions -

Buy the Aug $80 call (CVS140816C80) current ask $0.96

symbol-year-month-day-call-strike

Annotated Chart:

Weekly Chart:

Entry on May -- at $---.--
Average Daily Volume = 5.1 million
Listed on May 21, 2014