CVS Stock Vs Walgreens: Which Is Best?

CVS Health Corp (NYSE:CVS) and Walgreens Boots Alliance Inc (NASDAQ:WBA) are major players in consumer healthcare. Regardless of which pharmacy you choose, you can get anything from vaccinations to medications, holiday decorations, and even sunscreen for your next vacation.

When the coronavirus pandemic hit, both companies’ stocks nosedived, despite them being in the perfect position to respond to it. And respond they did, as both offer drive-through coronavirus testing in the age of social distancing.

But which is the better investment between CVS vs Walgreens stock? And why have both of these companies remained discounted in the back half of 2020, even though they were flooded with panic shoppers stocking up on prescriptions and other essential supplies at the onset of the pandemic? 

Vaccine Distribution A Win For CVS and Walgreens

Notably, both companies struck a deal with the U.S. Department of Health and Human Services in October 2020 to administer free coronavirus vaccines to staff and the elderly living in long-term care facilities, one of the biggest hotspots since the initial outbreak.

Each company has a similar footprint, managing just under 10,000 stores a piece. CVS has the higher market cap, at over $75 billion versus $30 billion for Walgreens. It also has a substantially lower P/E ratio, at 9.36 versus Walgreens’ 72.49.

Let’s dive into what these numbers mean for each company and what their long-term earning prospects and roadmaps for the future are to determine which is the better buy. We’ll start with CVS.

CVS Is Expanding But Long Term Debt Is A Drag

CVS is barely above its coronavirus crash price of $52.04 heading into one of the biggest flu seasons on record, and it’s ramping up its staff to meet the challenge. It has plans to hire 15,000 employees, including over 10,000 part-time and full-time licensed pharmacy technicians.

Its market cap under $80 billion is a value for long-term investors seeking growth potential, as it traded in the $100 range back in 2016. This was before the company struck a deal to buy health insurance provider Aetna for $69 billion in late 2019.

This makes it a health insurance provider, pharmacy, and retail store, giving it various markets in which to generate revenue. On top of this, approximately 70 percent of U.S. residents live within three miles of a CVS pharmacy.

This brick-and-mortar footprint gives it a strong platform to compete when winter arrives, and it could easily surpass analyst expectations with its variety of medical necessities, household goods, food, and personal hygiene items.

Its biggest problem is its long-term debt of $63.9 billion sitting on its books, which made investors bearish and kept the price limited through 2020.

The company’s 3.32 percent dividend yield translates to a $2-per-year payment to shareholders, and the $0.50 quarterly payout remained consistent since 2017.

Until that time, it raised its dividend for 14 consecutive years. Bullish investors are hoping the pandemic will return CVS to its former market glory.

Walgreens Buybacks On Hold

Walgreens experienced the same coronavirus problems CVS did, but it reports its earnings on a different schedule, putting its trading activity in a different pattern too.

It’s also struggling to rise above its coronavirus crash price of $41.02 – in fact, it traded below that price through September and October, after posting a net loss of $1.71 billion in the third quarter, equating to $1.95 per share.

This caused the company to pause stock buybacks and pushed it further down. By the fourth quarter, it managed to improve and beat analyst estimates, bringing in $2.3 billion in sales.

The company’s retail sales did have bright spots, especially in the U.S., but international markets and certain retail categories stalled due to municipal stay-at-home orders. However, Walgreens is getting the same boosts CVS is.

The ongoing coronavirus pandemic and upcoming flu season put both companies front-and-center in many investors’ minds. Operation Warp Speed is fast-tracking several promising vaccine candidates, and senior care facilities are rushing to sign up for free vaccines paid for the by the government.

Walgreens pays a $1.87 annual dividend that’s paid quarterly. This gives is a 4.92 percent dividend yield, which it paid for 350 consecutive quarters, with 44 straight years of dividend raises.

CVS Foot Traffic Set To Rebound? 

CVS has been pouring money into finding values to provide customers over its rival, including free access to Apple Fitness+ and community support efforts like a $13.7 million investment in low-income housing renovations.

The company’s losses have largely been attributed to the pandemic, and it’s working hard to bring foot traffic back, even if the people never leave the parking lot.

The biggest risk is these efforts don’t pay off, and the company is forced into cost-cutting measures that could include suspending dividend payouts or contracting its retail footprint.

It could also find itself with higher-than-expected loss ratios in its insurance division. However, these risks are relatively low, as the company’s vaccine-related revenues are sure to make up for most potential shortcomings.

Dangers of Buying Walgreens

One of Walgreens’ biggest weaknesses is its ecommerce. While it’s sluggish to provide proper online prescription services, other internet-based businesses like Amazon’s Pill Pack are muscling in on its territories.

The company also has $16.49 weighing it down, including a completed a $1.5 billion debt offering in April. However, the coronavirus isn’t the biggest problem – its stock price was slowly deflating for years before COVID-19 ever hit.

The company is highly focused on improvement efforts, and it has a transformational cost management program shaving $1.8 billion a year off operational costs.

Theses steps should keep it in the running for long-term growth potential, even if the near-term future is somewhat rocky.

Walgreens Vs CVS Stock: The Bottom Line

Walgreens and CVS are often grouped together since they’re in the same markets. They sell similar products and both struck a deal with the U.S. government to provide vaccinations to at-risk populations. However, they’re having much different market responses in the aftermath of the coronavirus pandemic, due to their differing balance sheets and reporting periods. This makes them appealing to different types of investors.

CVS is the bigger player and benefitted the most in the short term from its COVID-19 response. Walgreens has been on a decline for years and is aggressively cutting costs to stay lean and compete. Both have long-term investment potential if you can weather the short-term storm.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.