CVS Health Corporation (CVS) and Walgreens Boots Alliance, Inc. (WBA) are two of the world’s top players in the healthcare space. CVS, which is an integrated pharmacy healthcare company, is famous for its pharmacy care for the senior community through its Omnicare, Inc.’s long-term care (LTC) operations. WBA is a pharmacy-led health and wellbeing company that  operates primarily  through three segments — Retail Pharmacy USA, Retail Pharmacy International, and Pharmaceutical Wholesale.

Some companies in the healthcare space received much more attention that usual amid the coronavirus pandemic as people became more health conscious. The importance of having proper healthcare facilities is now more widely appreciated and is unlikely to diminish anytime soon. As a result,  CVS and WBA are expected to witness greater demand for their products and services in the near term.

While CVS has returned 108.5% over the past 10 years, WBA has gained more than 19%. However, in terms of year-to-date performance, WBA is a clear winner with a 23.4% return versus CVS’ 8.7%. But which of these two stocks is a better pick now? Let’s find out.

Latest Movements

On January 25 CVS announced that it had  administered the first round of COVID-19 vaccine doses to nearly 8,000 skilled nursing facilities across U.S. The administration of second doses is  underway and is expected to be completed within four weeks.

The company announced on January 21, that Kyu Rhee, M.D., MPP, has joined the company as the Senior Vice President and Chief Medical Officer of Aetna, a CVS Health company.

Also this month, CVS  announced the launch of the Symphony, a medical alert system to help support seniors’ safety at home. The core  of the Symphony ecosystem is a voice-activated smart hub that  enables hands-free calls with caregivers or emergency responders, while also monitoring motion, temperature, and air quality within the home.

CVS is working with Cancer Treatment Centers of America (CTCA) to increase access to chemotherapy at home for eligible, fully insured patients. Also, the company announced a quarterly dividend of $0.50, which is payable on February 1.

WBA has appointed Rosalind (Roz) Brewer as the company’s CEO, effective on March 15, 2021. She has a proven track record in leadership and operational expertise at multinational corporations and is currently ranked #27 on Fortune’s 50 Most Powerful Women in Business.

On January 12, the company made a majority investment in iA, a Koran company that provides automotive semiconductor chips, modules, and solutions, to advance the automation capabilities for the pharmacy industry.

WBA this month entered a strategic agreement with AmerisourceBergen Corporation (ABC) under which ABC will acquire most of WBA’s Alliance Healthcare businesses. The move  is expected to provide even stronger support for pharmacies and pharmacists around the globe and integrated solutions for pharmaceutical manufacturers. On the same date, WBA and  VillageMD announced that WBA has accelerated its investment in VillageMD to support the opening of 600-700 Village Medical Centers at the company’s primary care clinics in more than 30 U.S.  markets within the next four years.

Recent Financial Results

CVS’ revenue surged 3.5% year-over-year to $67.06 billion for the third quarter ended September 30, 2020, driven primarily by growth in the Health Care Benefits and Retail/LTC segments.

Its revenue from Retail/LTC segments increased 5.9% year-over-year to $22.73 billion. Revenue from products, which accounted for 71.2% of total revenue, increased to $47.74 billion, and revenue from services increased 3.9% year-over-year to $1.93 billion. Its operating income increased 11% year-over-year to $3.25 billion, while its EPS of $1.66 surpassed the Street’s  estimate by 24.8%.

WBA’s sales for the fiscal 2021 first quarter ended November 30, 2020 increased 5.7% year-over-year to $36.31 billion, which reflected  growth in Retail Pharmacy USA and Pharmaceutical Wholesale. Retail Pharmacy USA sales increased 3.9% year-over-year to $27.2 billion. Its gross profit increased 4.9% sequentially to $7.14 billion, and its EPS increased 19.6% sequentially to $1.22.

Past and Expected Financial Performance

CVS’ revenue has increased at a CAGR of 13.3% over the past three years. The market expects the company’s revenue to increase 2.2% for the quarter ending March 31, 2021, and 3.8% in 2021. CVS’ EPS is expected to grow 1.3% in 2021, and at a rate of 4.6% per annum over the next five years.

In comparison, , WBA’s revenue increased at a CAGR of 5.5% over the past three  years. The market expects WBA’s revenue to increase 4.9% for the quarter ending May 31, 2021, and 1.8% in 2021. The company’s EPS is expected to grow 2.5% in fiscal 2021, and at a rate of 3.9% per annum over the next five years.

Profitability

CVS’ trailing-12-month revenue is 1.87 times WBA’s $141.50 billion. However, WBA is slightly more profitable with a gross margin of 19.7% versus CVS’ 18.1%.

But CVS’ leverage free cash flow margin of 4.5% compares favorably with WBA’s 1.9%.

Valuation

In terms of forward P/E, WBA is currently trading at 10.18x, 1.9% more expensive than CVS, which is currently trading at 9.99x. Though CVS is less expensive in terms of trailing-12-month price to book (1.39x versus 2.06x), its trailing-12-month P/S of 0.36x is higher than WBA’s 0.29x.

In terms of trailing-12-month price/cash flow, WBA’s 7.35x is 14.5% higher than CVS’ 6.42x.

So, CVS is the more affordable stock.

POWR Ratings

While CVS is rated “Strong Buy” in our proprietary POWR Ratings system, WBA is rated “Buy.” Here are how the four components of overall POWR Rating are graded for CVS and WBA:

CVS has an “A” for Trade Grade, Buy & Hold Grade, and Industry Rank, and a “B” for Peer Grade. It is currently ranked #1 of 6 stocks in the Medical – Drug Stores industry.

WBA holds an “A” for Trade Grade, Buy & Hold Grade, and Industry Rank, and a “D” for Peer Grade. It is currently ranked #4 in the same industry.

The Winner

Both CVS and WBA are good investment bets considering their continued product innovations, and market dominance. However, CVS appears to be a better buy at a lower valuation based on its superior financials.

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CVS shares were trading at $73.11 per share on Wednesday morning, down $1.12 (-1.51%). Year-to-date, CVS has gained 7.76%, versus a 1.11% rise in the benchmark S&P 500 index during the same period.

About the Author: Manisha Chatterjee

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst. More...

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