CVS and Walgreens Have the Right Prescription for Future Growth

When it comes to pharmacy chains, two companies are such dominant players that their names have become synonymous with pharmacies -- CVS Health and Walgreens Boots Alliance . Although both stocks have been underperformers in recent years, the two companies have positioned themselves for renewed growth in the years ahead, according to two industry-leading investment experts and contributors to MoneyShow.com. Genia Turanova, Unlimited Income COVID has changed healthcare forever, and CVS Health is evolving to capitalize. And while Amazon has been endangering pharmacies and drugstores recently, one thing that Amazon can't do is safely deliver and administer vaccines. While we saw a lot of mass vaccination sites pop up in 2021 as vaccines saw their initial rollout, this won't continue to be the case. Instead, like you do for the flu shot, you'll go to your doctor's office, pharmacy, or drugstore for a yearly COVID booster. And CVS is set to be one of the main beneficiaries. The company also has a new CEO as of Feb. 1. Karen Lynch isn't an outsider. Before signing on as CVS's CEO, Karen Lynch oversaw Aetna, the insurance business that CVS bought for $70 billion a couple of years ago. One of Lynch's key focuses in her new role will be to push the company's consumer-centric evolution. A centerpiece of this new strategy is the ongoing transformation of CVS stores into HealthHUB locations. These concept stores differentiate CVS Health from its competitors. Customers can get treatment from a nurse practitioner for basic illnesses like a cold or flu. The HealthHUB model allows CVS to expand on its already existing -- and successful -- Minute Clinic model. The company expects to have 1,500 operational HealthHUBs by the end of this year. The sites will also be equipped for telehealth visits. HealthHUBs will help CVS sell more prescriptions while generating extra revenue on knicknacks and necessities. Put simply, the more people that visit CVS, the more sales it makes. The HealthHUB idea isn't new. The plan to use more floor space for healthcare services was a part of a way to integrate Aetna into CVS's business. Here's a quick summary of all the reasons to own CVS today: 1) CVS is a leader in COVID-19 response and vaccine efforts -- and will benefit from this leadership for years to come. 2) CVS isn't expensive: The stock recently traded at a forward price-to-earnings ratio (P/E) of just under 10 -- while the stock market has a P/E around 23. Meanwhile, analysts expect profit growth of 6%-plus annually for the next few years. If all goes according to new CEO Lynch's plan, these numbers might prove conservative. In any case, the stock is very cheap. 3) At 2.7%, CVS's dividend yield is more than 1% better than the market's (just 1.5%). This is an example of when a higher yield means better value. 4) Since setting a high of about $111 back in 2015, and subsequent years of declining price action, CVS Health's share price is finally on the mend -- up around 34% year over year, and 9% so far in 2021. There's still a lot of ground left to cover... but, in my opinion, it's all within reach for CVS Health, thanks to the competitive advantage it gained over its competitors during the COVID-19 crisis. Our recommendation is for investors to buy a full position in CVS Health for a combination of its 2.7% dividend yield and its growth potential. Do not pay more than $80 per share. Jim Pearce, Investing Daily's Personal Finance Two years ago, Walgreens Boots Alliance -- a holding in our model growth portfolio -- had lost more than a third of its value as the company struggled to digest the purchase of nearly 2,000 Rite Aid stores. At the time, the company was dealing with the fallout from the Brexit vote (the company has significant holdings in Europe). And, as I noted then, Walgreens' management team vowed to take aggressive action in dealing with both of those challenges in addition to the constant threat posed by Amazon . Last November, the e-tailing giant introduced Amazon Pharmacy, which offers free delivery to its Amazon Prime members. To put it mildly, the pressure was on. The share price has gone nowhere over the past two years, though the stock has delivered a total return of 7% since then due to its generous dividend payment. That's better than nothing, but a far cry from the 47% return posted by the SPDR S&P 500 ETF Trust over the same interval. From a shorter-term perspective, WBA has gained 40% since the day Amazon announced its entry into the online pharmaceutical business. Over the same span, SPY is up 15% and Amazon has returned less than 8%. Presumably, if Amazon really is the existential threat to Walgreens that it was feared to be two years ago then those numbers would look quite different. At the start of this year, the company announced: Walgreens Boots Alliance Fiscal 2021 First Quarter Results Exceed Expectations. At first glance, delivering a per-share loss of $0.36 versus a gain of $0.95 the year prior may not sound impressive. But that's because the company took a one-time, per-share charge of $1.73 during the quarter related to the sale of its Alliance Healthcare business that masked what was otherwise a solid performance. For that reason, Wall Street eagerly anticipated Walgreens' fiscal 2021 second-quarter report, which was released on March 31. Without another big write-off to distort the results, the company generated per-share earnings of $1.19 during the quarter compared to $1.07 last year driven by a 4.6% increase in sales. In addition, Walgreens estimates that its second-quarter per-share earnings were negatively impacted by 40 to 45 cents due to the pandemic. Walgreens also raised its guidance for the remainder of this fiscal year from low single-digit growth in adjusted earnings per share to mid-to-high single-digit growth in constant currency adjusted EPS from both total and continuing operations. In part, that change in outlook has been aided by the pandemic since Walgreens claims it has administered more than 8 million COVID-19 vaccinations... and has provided some 5 million COVID-19 tests. The company further said that it has launched 25 major vaccination hubs at Boots stores in Europe. Perhaps the most important long-term development at Walgreens was the ascension of Rosalind Brewer to the CEO's office on March 15. At the same time, the company is divesting its Alliance Bergen wholesale pharmaceutical division that provides discounted drugs to hospitals and doctors so it can focus on its retail operations in the United States and Europe. According to Brewer, I will continue to review closely all our initiatives, strategies and opportunities to capitalize fully on the incredible potential in front of us. That effort includes beefing up Walgreens' online presence so that it can better compete with Amazon. To that end, earlier this year Walgreens bought a majority interest in a privately held software developer. At the same time, Walgreens will be restructuring its in-store retail locations to facilitate the same-day pick-up of online orders. The company noted that more than 4 million orders have been completed since the launch of Walgreens same-day pick-up and that online sales for its Boots U.K. division doubled during the most recent quarter. In hindsight, it is clear that Walgreens overextended its financial and operational resources as it fought wars on multiple fronts. However, it now appears the company has right-sized the scope of its operations and is focusing on the correct initiatives to drive future growth. The company still has a lot of work to do to justify its inclusion in the Dow Jones Industrial Average three years ago but it is still a bargain at 12 times forward earnings so I am raising the buy limit for Walgreens Boots Alliance to $62 per share.

CVS and Walgreens Have the Right Prescription for Future Growth

Both stocks have been underperformers.

Columnist Conversation

The ARKK Will Not Sink as Our LT Bounce Zone Is...

For the First Time in Months...

$8.2 Million Insider Sale in Estee Lauder (EL)

COLUMNIST TWEETS

Please Join or Log In to manage and receive alerts.