- Earlier than the pandemic, many pharmacy chains have been adapting to a wellness mannequin
- Each CVS and Walgreens are making vital in-roads into this area
- What’s present, and future, outlook for each shares
At first look, CVS Well being NYSE: CVS) appears clearly superior to Walgreens Boots Alliance (NYSE: WBA). In truth, within the final 12 months, and even during the last 5 years, these are two shares on totally different trajectories.
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However this can be a time when understanding your “why” for proudly owning a inventory is so crucial. This text will analyze the present, and future, outlook for each shares and clarify why every has a case to make for various traders.
The Pharmaceutical Area is Altering
Even earlier than the pandemic, many pharmacy chains have been adapting to a wellness mannequin. The thought is to change into a vacation spot for patrons to handle their total well being care as a substitute of merely being a spot they go to select up a prescription. By taking up the function of a neighborhood clinic, pharmacy chains are including extra worth for his or her sufferers.
And each CVS and Walgreens are making vital in-roads into this area. CVS Well being hosts over 1,100 MinuteClinic areas that are simply one of many companies supplied by the corporate’s HealthHUB initiatives.
For its half, Walgreens provides its Village MD and Walgreens Well being initiatives. As of the corporate’s most up-to-date earnings report, the corporate has seeded the previous in 22 markets and plans to have roughly 200 clinics open by the top of 2022. And the corporate is planning to have roughly 100 Walgreens Well being Corners open by the top of the 12 months.
And each firms are energetic in digital care with the flexibility of sufferers to entry companies by means of cellular apps and telehealth companies. The Covid-19 pandemic made digital care important, but it surely additionally served as a proof of idea that, for some sufferers, could also be a alternative for managing continual circumstances.
Will an Acquisition Have a “Important” Affect on CVS Inventory?
CVS inventory has been outperforming the market within the final 12 months. And the inventory is getting a raise from a Wall Avenue Journal report that it has made a bid to purchase Signify Well being. The acquisition is sensible if CVS intends to department into the home-health sector. Signify Well being makes use of technological options to help in-home care. And, because the Journal reported, the corporate “provides in-home well being evaluations for Medicare Benefit and different government-run managed care plans.”
As of this writing, it is unclear whether or not the acquisition will undergo. Nevertheless, if it does, it might sign the subsequent leg up for a inventory that is climbed 26% previously 12 months and is basically flat for the 12 months. The corporate is projected to publish single-digit progress in each income and earnings over the subsequent 5 years with out the Signify Well being acquisition. Analysts are additionally reasonably bullish on the inventory giving it a 12% upside.
With that stated, the corporate has been on a shopping for spree currently having purchased Omnicare and Aetna for a complete value of over $40 billion {dollars}. Whereas it does seem that the corporate’s free money stream (FCF) ought to be greater than sufficient to cowl the acquisition, short-term traders could also be in for some volatility.
Walgreens Boots Alliance is an Undervalued Dividend Inventory
In distinction to CVS Well being, Walgreens has seen its share value fall over 50% within the final 5 years. And WBA inventory is down 16% in simply the final 12 months. Making issues worse, the brief curiosity on the inventory is 3x increased than that of CVS inventory. There’s clearly bearish sentiment on Walgreens.
However there are vivid spots in case you are searching for under-the-radar worth shares. For starters, Walgreens pays a sustainable, rising dividend. In truth, the corporate has elevated its dividend in every of the final 47 years.
And, by any goal measure, WBA inventory is undervalued. The inventory is buying and selling at simply over 7x earnings and the corporate scores above the sector common in key areas resembling revenue margin, return on fairness, and return on property. Analysts tracked by MarketBeat give the inventory a $46.25 value goal which supplies the inventory a 17% upside.
