Lehmans Cuts CVS to Buy from Strong Buy

Analyst Meredith Adler cites a cloudy outlook for at least six months and increased competition from Rite Aid

Lehman Brothers cut its rating on shares of CVS (CVS ) to buy from strong buy.

Analyst Meredith Adler said the outlook for next 6-12 months is cloudy. She notes the weak economy, and the increasingly competitive retail environment. She adds that gross margins have been pressured in both the pharmacy and front end businesses. She also notes that Rite Aid has been the most aggressive player in the retail drugstore sector. The analyst says Rite Aid can afford to be more promotional -- offering lower prices -- than CVS for some time.

The analyst also says that CVS won't cut expenses meaningfully as it tries to drive growth, which adds uncertainty to EPS estimates. Adler sees 2001 EPS of $1.81 and 2002 EPS of $2.00. She also cut her price target for the stock to $35 from $37.

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