CVS Health Corporation (CVS) delivers integrated pharmacy health care services in the United States. The company operates through three segments: Pharmacy Services, Retail/LTC and Corporate. As of December 31, 2020, it operated approximately 9,900 retail locations and 1,100 MinuteClinic locations, as well as online retail pharmacy websites LTC Pharmacy and On-Site Pharmacy.
Walgreens Boots Alliance, Inc. (WBA) is a pharmacy-led health and wellbeing company in the United States. The company operates through three segments—Retail Pharmacy USA, Retail Pharmacy International, and Pharmaceutical Wholesale. As of August 31, 2020, WBA operated 9,021 retail stores under the Walgreens and Duane Reade brands, and six specialty pharmacies.
Due to an increased demand for personal protective equipment ( PPE) kits, medical equipment and immunity-boosting drugs during the COVID-19 pandemic, most pharmacy retail companies generated record sales last year. Over the last year, almost all drug stores have made an effort to expand their market reach, make needed equipment available in their stores, provide COVID-19 test facilities, and give safe and efficient services to their customers. And because new variants of coronavirus are being reported in many parts of the country, drug store sales are expected to continue.
CVS has returned 4.8% over the past month versus WBA’s 2.9%. In terms of the past year’s performance, CVS is a winner with 27.3% returns versus WBA’s 27%. But which of these two stocks is a better pick now? Let’s find out.
On March 31,CVS announced its new goals with respect to its long-term corporate social responsibility (CSR) strategy, Transform Health 2030, and released its 14th annual CSR report. The company plans to expand its market reach by providing more efficient services to its customers. Also among its new goals is to reduce its overall environmental impact by at least 50% by 2030.
CVS Pharmacy, the retail division of CVS, last week made available three over the counter COVID-19 testing options in stores and online. And CVS Health, through its subsidiary Aetna, has unveiled The Aetna Connected Plan, which combines Aetna’s cost-saving performance network with access to expanded services at CVS Health retail and pharmacy.
Meanwhile, on March 12, WBA paid a $0.47 quarterly dividend per share In February, it published its At the Heart of Health 2020 corporate social responsibility (CSR) report. The report highlights the company’s commitment to meeting the critical needs facing communities during the pandemic company and explains that it has been able to provide improved access to healthcare and innovative and sustainable solutions, including reducing its carbon footprint and generation of waste, while increasing its reuse and recycling.
In January, WBA made a majority investment in iA, a leading-edge provider of software enabled automation solutions for the retail, hospital, federal healthcare and mail-order pharmacy markets. WBA’s investment will support iA’s expansion and further development of pharmacy automation solutions to the benefit of the pharmacy industry.
Recent Financial Results
CVS is scheduled to release its fiscal 2021 first quarter results on May 4. CVS’ total revenues for the fourth quarter, ended December 31, 2020, increased nearly 4% year-over-year to $69.55 billion. Its total revenues from its pharmacy services segments have increased 1.8% sequentially to $36.36 billion. And its revenues from its health care benefits segment increased 11.4% year-over-year to $19.10 billion.
As of December 31, 2020, CVS’ total assets have increased 3.7% year-over-year to $230.72 billion. Its net cash provided by operating activities increased 23.5% year-over-year to $15.87 billion. The company had cash and cash equivalents of $8.13 billion.
For its fiscal year 2021 second quarter, ended February 28, 2021, WBA’s sales increased 4.6% year-over-year to $32.78 billion. And for the six months ended February 28,WBA’s net cash provided by operating activities came in at $2.56 billion, which represented a 2.9% rise year-over-year. The company had cash and cash equivalents of $1.31 billion.
Past and Expected Financial Performance
CVS’ revenue and total assets grew at CAGRs of 13.2% and 34.4%, respectively, over the past three years. The CAGR of the company’s EBITDA has been 13.9% over the past three years.
Analysts expect CVS’ revenue to increase 8.2% in the current quarter (ending June 30, 2021), 4.2% in the current year, and 3.9% next year. Its EPS is expected to decline by 28.8% in the current quarter, and then rise by 0.3% in the current year, and 7.7% next year. CVS’ EPS is expected to grow at a rate of 3.8% per annum over the next five years.
In comparison, WBA’s revenue and total assets grew at CAGRs of 4.7% and 8.7%, respectively, over the past three years. The CAGR of the company’s EBITDA has been negative over the past three years.
Analysts expect WBA’s revenue to decline 2.6% in the current quarter (ending May 31, 2021) and 6.2% in the current year but increase by 4.5% next year. However, its EPS is expected to increase 62% in the current quarter, 9.1% in the current year and 11.3% next year. Unfortunately, its EPS is expected to grow at a rate of 3.6% per annum over the next five years.
CVS’ trailing-12-month revenue is more than 1.8 times WBA’s. CVS is also more profitable, with a net income margin of 2.7% versus WBA’s negative value.
Furthermore, CVS’ 10.8% ROE compares favorably with WBA’s negative value. Also, CVS’ ROA of 3.7% compares with WBA’s 1.8%.
In terms of forward non-GAAP P/E, WBA is currently trading at 11.32x, 11.1% higher than CVS, which is currently trading at 10.19x. Also, in terms of trailing-12-month price/cash flow, WBA’s 8.41x is 32.6% higher than CVS’ 6.34x. Also, CVS’ forward EV/EBITDA of 9.67x is significantly lower than WBA’s 13.62x.
Thus, CVS looks more affordable here.
While WBA has an overall C rating, which translates to Neutral in our proprietary POWR Ratings system, CVS has an overall B rating, which equates to a Buy. The POWR Ratings are calculated by considering 118 different factors with the weighting of each optimized to improve overall performance.
Both CVS and WBA have a C Momentum Grade, due to their mixed price performance. However, in terms of Value Grade, CVS has been graded an A, given its lower-than-industry valuation multiples. In comparison, WBA’s has a B grade for Value, which is consistent with its lower-than-industry forward non-GAAP P/E ratio.
CVS has a B grade for Sentiment also, which is consistent with analysts’ expectations that its revenue and EPS will increase. WBA’s C grade for Sentiment reflects relatively weak EPS and revenue growth expectations.
Among the six stocks in the B-rated Medical – Drug Stores industry, CVS is ranked #1, while WBA is ranked #2.
Beyond what we’ve stated above, our POWR Ratings system has also rated both CVS and WBA for Growth, Stability, and Quality. Get all CVS ratings here. Also, click here to see the additional POWR Ratings for WBA.
Both CVS and WBA have been putting effort into making healthcare products and COVID-19 test facilities more accessible. They have both shown their commitment toward sustainability and waste management. However, CVS appears to be a better buy based on its higher earnings growth potential and lower valuation.
Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to access the top-rated stocks in the Medical – Drug Stores industry.
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CVS shares were trading at $76.04 per share on Friday morning, down $0.14 (-0.18%). Year-to-date, CVS has gained 12.81%, versus a 10.79% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market. More...
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