Stock Wars: CVS Health Vs. Walgreens Boots Alliance

The two largest pharmacy chains in the U.S. have grown through unit expansion and several major acquisitions. The companies have seen their share prices fall on concerns surrounding's entry into the market.

Benzinga is looking at how CVS Health Corporation CVS and Walgreens Boots Alliance WBA stack up in Stock Wars.

About CVS Health: CVS is a player in the pharmacy, insurance and benefits management businesses. The company has over 9,900 retail pharmacy locations and over 1,100 walk-in clinics.

CVS has over 105 million plan members for its pharmacy benefits and 37 million health insurance product customers.

One in three Americans interact with CVS on a yearly basis. Over 70% of the U.S. population lives within three miles of a CVS store.

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About Walgreens Boots: Walgreens has a presence in more than 25 countries and operates over 21,000 stores across its held companies. In the U.S., Walgreens has over 9,000 stores.

Around 78% of the U.S. population lives within a five-mile radius of a Walgreens-owned store.

Major Acquisitions: In 2018, CVS acquired managed health care company Aetna in a $70-billion deal. The completed deal led CVS to three major priorities going forward: making health care accessible, simplifying how consumers access care and lowering costs.

Walgreens attempted to buy Rite Aid Corporation RAD in a large $17-billion deal between two of the top three retail pharmacy companies in the U.S.

The deal with Rite Aid faced heavy pressure from the Federal Trade Commission. Walgreens eventually acquired 1,932 Rite Aid stores in a separate $4.4-billion deal.

In 2014, Walgreens completed its acquisition of Alliance Boots. Walgreens restructured into a holding company structure after acquiring the remaining 55% of Alliance Boots that it did not own.

Medicare, Medicaid: With its ownership of Aetna, CVS Health is a major player in the Medicare and Medicaid health care market.

Piper Sandler recently initiated coverage of CVS and cited the growth in Medicaid as a catalyst going forward under a Joe Biden presidency.

Analyst Sarah James sees CVS adding $700 million annually for its health insurance plan business due to Biden winning the 2020 election. The plan business could hit $8.4 billion in annual revenue.

Fighting Off Amazon: E-commerce leader AMZN announced plans to launch Amazon Pharmacy to take on the $300-billion pharmacy market.

The plan for Amazon is to offer prescription medicines for home delivery, including free delivery for Amazon Prime members.

The announcement from Amazon has put pressure on retail pharmacy stocks.

Both companies will need to fight to fend off disruptor Amazon. Right now, Amazon's offering will only be available to Prime members. Amazon also cannot ship certain drugs through the mail. 

Financials: CVS had revenue of $256.8 billion in fiscal 2019, which represents year-over-year growth of 32%. The company has grown its revenue in each of the last five years, going from $153.3 billion to $256.8 billion.

Walgreens had revenue of $139.5 billion in fiscal 2020. The company has grown sales in each of the last five years, going from $117.4 billion to $139.5 billion.

CVS has increased its earnings per share in four out of the last five years, with fiscal 2019 and fiscal 2018 both posting $7.08 in earnings per share.

Walgreens has seen earnings per share fall several times, going from $3.85 to $3.80 and $5.07 to $4.32. Fiscal 2020 earnings per share were $4.74.

Stock Performance: Shares of CVS Health are down 9% in 2020. The company’s shares have lost 28% of their value over the last five years.

CVS Health has a market capitalization of $89 billion.

Shares of Walgreens Boots are down 36% in 2020. The company’s shares are down 55% in the last five years.

Walgreens Boots shares have a market capitalization of $33 billion.

Benzinga’s Take: In the Piper Sandler analyst note, it was said that CVS had more stores offering COVID-19 tests, which brought new customers to CVS stores.

Of the 3 million tests done, 40% were done for people who were not CVS customers.

Add in the logistics of CVS having stores within three miles of 70% of the population and health insurance plan offerings that could benefit from a Biden presidency, and CVS could be the winner.

Photo by MusikAnimal via Wikimedia

Posted In: 2020 presidential electionJoe BidenMedicaidmedicarepharmacyPiper Sandlerstock warsLong IdeasSmall CapTrading Ideas