Both companies have presences in thousands of locations across the country: Rite Aid stores are found in larger numbers on the East Coast, whereas Walgreens is virtually everywhere.
What’s more, the two companies were previously in discussions for a merger, although the deal ultimately fell through.
CVS Health’s acquisition of Aetna was finalized in November 2018, creating formidable competition for Walgreens and Rite Aid in the pharmacy space. So comparing Walgreens Vs Rite Aid, the question is which stock should you choose?
The Pros and Cons of Investing in Pharmacy Stocks
There will always be consumer demand for pharmaceutical drugs, especially as the baby boomer generation in the U.S. ages and requires more medical care so buying into pharmacy stocks as a whole has historically been a good bet.
The performance of healthcare stocks in the past has been more consistent and predictable than many other investment options. With a drugstore seemingly on every street corner in the U.S. and steady consumer demand, it’s hard to see how the industry could face a serious downturn unless the entire economy does as well.
However, the healthcare and pharmaceutical industries will also be at a crossroads in the short and medium terms. The Affordable Care Act (a.k.a. “Obamacare”) still remains in place, although Republicans in Congress have repealed the law’s individual mandate that required all U.S. residents to purchase health insurance.
In addition, several 2020 presidential candidates support single-payer healthcare (a.k.a. “Medicare for all”).
According to investment banking company Raymond James [NYSE: RJF], a single-payer system would reduce pharmaceutical drug prices by at least 30 percent – good news for consumers, but not good news for companies like Walgreens [NASDAQ: WBA] and Rite Aid [NYSE: RAD].
In September 2018, Amazon [NASDAQ: AMZN] closed its $753 million acquisition of online pharmacy PillPack, and it has recently hinted that PillPack could be part of Amazon Prime.
Still, there’s no reason for Walgreens and Rite-Aid to be immediately concerned, thanks to their dominant position in the market.
Is Walgreens Boots Alliance a Buy?
Neither Walgreens [NASDAQ: WBA] (actually a subsidiary of the holding company Walgreens Boots Alliance) nor Rite Aid has had very good share performance these past few years, despite strong returns for the stock market at large.
Still, in a head-to-head comparison, Walgreens comes out the “winner” here. Walgreens shares have remained virtually flat over the past five years, while Rite Aid shares have cratered over the same time period.
Starting in early 2017, Rite Aid stock has been on a long decline that’s now at less than 10 percent of its peak in 2015.
After the report went public, shares of Walgreens stock plummeted by 12 percent, the company’s worst single-day performance since acquiring British pharmacy chain Boots in 2014.
What’s more, Walgreens plans to close many of its more than 9,000 locations in the U.S. and abroad. This includes 200 Boots locations in the United Kingdom and 750 of the stores that Walgreens acquired from Rite Aid in 2018.
Should You Invest in Rite Aid Stock?
Unfortunately, the news for Rite Aid stock could be even less favorable.
Since the Walgreens merger deal fell through, shares of Rite Aid [NYSE: RAD] have fallen drastically, plunging a shocking 83 percent over the past year.
During Rite Aid’s first quarter ending in June, the company reported that it lost $1.88 per share and came in slightly below Wall Street’s revenue estimates.
Walgreens’ decision to sell many of the stores it acquired from Rite Aid is another ominous sign, suggesting that these locations were performing worse than expected.
If there’s one good piece of news for Rite Aid [NYSE: RAD], it may ironically come from Amazon. In June 2019, Amazon announced a new partnership with Rite Aid that will allow customers to pick up their Amazon packages from Rite Aid stores over the counter.
Could Amazon be planning to snap up Rite Aid some day in the future just as it did Whole Foods? That would allow Amazon the much needed infrastructure to support local delivery.
Rite Aid executives have also announced plans for new payment models due to pushback from consumers over increasing prescription drug prices.
Walgreens Vs Rite Aid Stock: The Bottom Line
As of right now, buying shares in either Walgreens [NASDAQ: WBA] or Rite Aid remains a risky bet.
While at first glance they may seem like they are undervalued and therefore a good buy, a closer look will reveal otherwise. The state of brick-and-mortar pharmacies such as Walgreens and Rite Aid is currently in flux, with future debates on the country’s healthcare system and Amazon’s potential arrival to worry about.
If you’re still interested in investing in pharmacy stocks, take a look at Walgreens’ and Rite Aid’s competitor CVS Health [NYSE: CVS].