CVS Caremark said it had authorized a stock buyback of up to $2 billion, an indication of confidence in its growth prospects.

The announcement, which sent the company's shares up more than 1 percent, follows a very public spat with rival Walgreen over such issues as prescription drug reimbursement from CVS's pharmacy benefits management business. Analysts have said Walgreen may lose more from the dispute in the short term, but that CVS is also vulnerable without the top U.S. drugstore chain.

Over the next five years, we expect to generate significantly more free cash flow than what we've generated in the past five years, Chief Financial Officer Dave Denton said in a statement, and we expect to use the majority of that free cash flow in the near-term to enhance shareholder returns through dividends and share repurchases.

The repurchase, effective immediately, expires at the end of 2011.

CVS bought Caremark for $27 billion in 2007 to expand its pharmacy benefits management operations.

Last week the company said it would remove Walgreen from its PBM network altogether, striking back after Walgreen decided to stop filling prescriptions for new CVS Caremark business.

CVS shares were up 1.2 percent at $32.46 in early New York Stock Exchange trading, while Walgreen rose 1.3 percent.

(Reporting by Nivedita Bhattacharjee; Editing by Lisa Von Ahn)