Caremark a Good Hold, a Buy on Dips

It has been a darling of Wall Street for the last year, and now sells for nearly 30 times its estimated 1987 earnings. At that kind of multiple, Caremark stock is getting pricey, and investors should wait to buy, advises analyst Dorothy Ryan of Swergold, Chefitz & Sinsabaugh Inc.

In a recent research report, Ryan said she expects Caremark to earn 88 cents a share on revenues of $197 million during the fiscal year that ends June 30. Based on Caremark’s 14.3 million outstanding shares, that translates into net earnings of $12.6 million.

A year earlier, the Newport Beach-based company, which specializes in in-home infusion therapy for a variety of ailments, including AIDS, reported earnings of 51 cents a share, or $7.4 million, on $49.7 million in revenues.

Because of the growth potential inherent in Caremark’s recent joint ventures with Hospital Corp. of America, United Healthcare and Blue Cross of Indiana, Ryan has raised her estimate of the company’s 1988 earnings to $1.25 a share, or about $17.9 million. Her previous estimate called for Caremark to earn $1.18 a share, or $16.9 million, on $250 million in revenues.

“With such strong earnings momentum, both near-and long-term, we think Caremark common stock should be held for continued capital appreciation potential,” Ryan said. “However, we would defer purchase of the stock pending a pullback from its recent meteoric rise.”

Ryan declined Friday to name the price at which she would start recommending new purchases to her clients.

Traded on the over-the-counter National Market System, Caremark closed Friday at $30.125 a share. Caremark, which has been hitting new highs recently, has traded for as low as $7.125 a share in the last 12 months.