The Zacks Analyst Blog Highlights: Citigroup, IBM, CVS Caremark, Express Scripts and Medco

CHICAGO, March 9, 2012 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include Citigroup Inc. (NYSE: C), IBM Corp. (NYSE: IBM), CVS Caremark (NYSE: CVS), Express Scripts (Nasdaq: ESRX) and Medco (NYSE: MHS).

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Here are highlights from Thursday's Analyst Blog:

Citi in Deal with IBM to Use Watson

On Monday, Citigroup Inc. (NYSE: C) entered into an agreement with IBM Corp. (NYSE: IBM) to identify the uses of IBM Watson in banking services. As per the terms of the deal, Citi will scrutinize the process of IBM Watson and will work on some initiatives to improve customer interactions as well as simplify banking services for them.

Watson, named after IBM founder Thomas J. Watson, is a computing system that competes with the ability of human beings to answer questions in natural language marked by speed, accuracy and buoyancy. The technology, built up by a group of scientists, precisely extort facts and helps understanding relationships quickly in large volumes of data. Moreover, the technology can be advantageous in increasing and enhancing decision-making process across a range of industries.

In the current digital world, Citi is working hard to provide its clients with the latest technology and improved services. Therefore, the company will investigate the deep content analysis and fact-based learning potentials found in IBM Watson as well as study its usage for its customers. The bank will figure out different ways under which IBM Watson technologies can evaluate the needs of the customers, help them and carry out huge up-to-date financial, economic, product and client data.

Citi has always been successful in exploring new ideas and executing modern ways to help its customers with the banking services according to their financial needs. Moreover, nowadays customers anticipate best services to be provided by banks in an integrated manner through various means such as phone, ATM, live-chat and net banking, in person or in a branch on time.

IBM is continuously working on the improvement of Watson to make it available in information-intensive industries. This technology enables various companies to make decisions and improve their ways of providing services to the customers.

Moreover, the partnership between IBM and Citi will come up with different ways of applying Watson in the consumer financial market. In addition to that, the pact would help taking significant step in welcoming personalized banking in the 21st century.

It's been almost 200 years since Citi started working with IBM. Together, they came up with innovative ideas to enhance the use of information technology in the financial services industry and are enduring those efforts till today.

Citigroup currently retains a Zacks #5 Rank, which translates into a short-term Strong Sell rating. However, considering the fundamentals, we maintain a long-term Neutral" recommendation on the stock.

CVS's New "Pharmacy Home"

Recently, CVS Caremark (NYSE: CVS) along with Harvard University and Brigham and Women's Hospital, conducted an extensive research on health policy and came up with some new ways to save more money while being treated. Through the study, they pointed out the importance of a single 'pharmacy home' for pharmacy customers.

According to the research data, patients using a single pharmacy are more likely to connect with their own pharmacists on a regular basis. The researchers consider this twice as effective as taking prescribed medications and this will automatically reduce health care costs by thousands of dollars annually. This is more applicable to patients aging over 65 years who take two to three times more prescription medications than others.

Around 10,000 people per day are expected to enter into the 65 years age group in the U.S. in the next 8 years. As a result, down the line, this 'pharmacy home' concept of CVS is expected to gain more importance.

CVS is gradually gearing up its performance in the field of Pharmacy Services. After a sluggish phase in fiscal 2010, the company exhibited improved performance in this segment throughout 2011 and has started off the 2012 selling season on a positive note.

With 90% of the contract renewals scheduled for 2012 already complete at the end of fiscal 2011, CVS' retention rate was as high as 98%. New business wins stood at an encouraging level of $7.2 billion (significantly up from the $6.8 billion provided on Analyst Day on January 10, 2012).

The company also won some new accounts, which led to an increase in estimates for the number of new Medicare Part D lives for 2012 to 200,000 lives, thus bringing the company's Medicare Part D prescription drug plans (PDP) lives up to approximately 3.6 million as of February 2012. The company also expects another $5.5 billion in new business wins associated with the PDP acquired from Universal American in 2011 and Universal American's Medicare Advantage plan.

However, despite implementing diverse strategies to expand its business, CVS continues to face margin pressure. Gross margin during the fourth quarter of fiscal 2011 decreased 258 basis points (bps) year over year to 19.6%. Moreover, operating margin contracted 60 bps to 6.9%.

In addition, the proposed merger between Express Scripts (Nasdaq: ESRX) and Medco (NYSE: MHS) is expected to further challenge CVS in the Pharmacy Services segment. The deal is expected to combine two of the three largest US drug benefit managers and create a dominant player in the PBM space that will cover more than 150 million prescription drug consumers and 50% of the large employer market.

Together with CVS, they are expected to cover approximately 240 million prescription drug consumers. Consequently, post-merger, even CVS would not be able to stand in competition with the combined entity. We expect the merger to create market concentration in the entire economy, leading to an anti-competitive landscape for CVS.

CVS currently retains a short-term Zacks #2 Rank (Buy). Over the long term, we have a Neutral recommendation in the stock.

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