Financial Report: Walgreens Boots Alliance and CVS Health Comparison

This report offers a comparative financial analysis of Walgreens Boots Alliance and CVS Health, two leading companies in the pharmacy sector. The analysis examines their growth strategies, including Walgreens' focus on pharmaceutical wholesaling and CVS's acquisition of Aetna and expansion of in-store clinics. The report evaluates the companies' valuations using metrics like P/S and P/E ratios, highlighting CVS's stronger position. It also assesses cash returns to shareholders, comparing dividend yields, payout ratios, and dividend growth, where CVS demonstrates superior performance. Ultimately, the report concludes that CVS Health is a better investment choice due to its stronger financial metrics and growth potential, while Walgreens faces challenges in sales and margins. The analysis uses data from Yahoo Finance and other financial sources to support its findings.

FINANCE

Walgreens Boots Alliance vs CVS
Walgreens Boots Alliance and CVS both belong to the pharmacy sector and both being leading
players in the retail field. Both have huge profit in billions but at the current point of time facing
immense challenges that have made them trade cheaply.
Growth
Walgreens has positioned itself as the biggest pharmaceutical wholesalers, retailer, as well as
distributor in both Europe and the U.S. As the population is aging in the region, it can be
commented that the business of Walgreen is accelerating, however, such is not the case.
Walgreen is facing immense challenges that have questioned its growth. Such contains lower
reimbursement rates from payers, declines in the price of the drugs, change in the preferences of
consumers and entry of new competitor that is Amazon.com into the industry. All such factors
have led to a decline in revenue and profits. The management is facing an uphill task and is
closing the stores that have under-performed, brining in new partnerships and cutting the yearly
costs. The present goal stands at $1.5 billion by 2022. The recent acquisition of Rite Aid 1900
stores projects a favorable situation to the investors that can yield profit and growth
As per the prediction of Wall Street, it is assumed that Walgreen profit will witness an annual
growth of 5.1% over the next 5 years.
On the other hand, CVS health rides in a similar position. The massive growth driver derives
from the current $70 billion acquisition of Atena that is a health insurer. The buy out was done
so that the business of CVS can get a new lease of life and ensure diversification away from the
pharmacy dependence that is struggling from the same concept as that of Walgreen. Further,
CVS is even building a network of in-store clinics that is called Minute Clinics that will ensure
the shopper to have another reason to visit the store and safeguard the store from online
competition. The mega buyout of Atena will provide huge cost savings to the company and it
aims at targeting in savings by more than $750 million next year (LaVito, 2019).
Going by the overall scenario, it can be projected that the growth of CVS will be around 5.8%
annually and hence has an edge over the projected growth of Walgreen. Hence, in this factor
CVS health will be a better bet.
Value
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Walgreens Boots Alliance vs CVS
Both the pharmacy that is Walgreen and CVS Health has underperformed the S&P 500 over the
last five years. The valuation of both the companies is down owing to the underperformance
factor (Fuscaldo, 2019). The following valuation metrics will endorse a better reply to the same:
Company P/S Ratio Trailing P/E Ratio Forward P/E Ratio
CVS Health 0.33 N/A 7.4
Walgreens 0.35 9.9 8.7
Source: Yahoo Finance (2019)
As per the argument and the figure it can be seen that both the companies are dirt cheap but the
numbers give a clear indication that CVS is in a better condition as compared to Walgreen and
hence in valuation part it surpasses Walgreens.
Cash to Shareholders
Both the companies, Walgreens and CVS Health has provided billions in profits every year and
shares a good history of sharing wealth with the investors. Both companies depend on buyback
of stock and dividend. In the past decade, both these companies relied heavily on the share
repurchase. This has supported the company in lowering the count of shares. But, the advantage
that can be garnered by the buyback was later offset by the decision of the company to issue
stock later to support the acquisitions. Therefore, the share count has always headed down.
The share count of CVS health has recently jumped owing to the buyout of Atena however, CVS
Health has been more regular in reducing the share count as compared to Walgreens. In terms of
dividend both the companies have provided money to the shareholders pocket (Feroldi, 2019).
The following are the key numbers that provide a comparison of the two companies’ dividend
structure:
Company Yield Payout Ratio Dividend Growth
5-Year
CVS Health 3.7% 28% 82%
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Walgreens Boots Alliance vs CVS
Walgreens Boots Alliance 3.3% 33% 40%
Source: Yahoo Finance (2019)
Going by the overall factor such as buyback program, strong dividend yield, lower payout ratio,
and a strong five-year dividend rate, CVS Health stands high in this category and surpasses
Walgreens considerably (Peirson et. al, 2015).
The better buy
As denoted from the above study that CVS Health is formidable and surpass Walgreens in all
three factors. Walgreens, as well as CVS Health shares, are trading at a multiple that has a low
valuation. In 2019, both the companies have taken a beating and the stocks have fallen by 22.3%
and 8.7% respectively (Doorn, 2019).
The decline emerges due to the pressure on earnings owing to enhanced reimbursements. It
needs to be noted a higher generic dispensing rate coupled with a cut-throat environment pose a
major threat to both the companies (Doorn, 2019). But, the essential point of consideration is that
the stock has shown a major recovery owing to the magnificent second-quarter performance.
Moreover, CVS trade at a valuation that is lower as compared to Walgreen and hence offers
more potential for growth (Porter & Norton, 2014).
Further, when it comes to CVS, it can be noted that the sales and earnings of the company
projected strong growth. Due to this fact, it can be said that the company enhanced its outlook of
the fiscal profit. In 2019, it is expected that the CVS can report an adjusted operating income of
$15.2 billion to $15.4 billion. The adjusted EPS of CVS will be in the range of $6.89-$7 in
comparison to the previous figure of $6.75-$6.90.
On the other hand, Walgreen is struggling in terms of sales and margin. The growth rate of sales
projected a sluggish attempt and the retail sales fell by 2.7% during the last quarter reported.
Hence, it can be commented that CVS Health excels Walgreens in all aspects and hence, CVS
can opt for purchase while Walgreen should be on Hold position.
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Walgreens Boots Alliance vs CVS
References
Doorn, P.V. (2019). Walgreens and CVS stocks look like tempting values, but investors may be
swallowing a bitter pill. Retrieved from: https://www.marketwatch.com/story/walgreens-and-
cvs-stocks-look-like-tempting-values-but-investors-may-be-swallowing-a-bitter-pill-
2019-04-08
Feroldi, B. (2019). Better Buy: Walgreens Boots Alliance vs. CVS Health. Retrieved from:
https://www.fool.com/investing/2019/05/18/better-buy-walgreens-boots-alliance-vs-cvs-
health.aspx
Fuscaldo, D. (2019). Does CVS Health Have Aspirations To Be a Tech Company? Retrieved from:
https://www.fool.com/investing/2019/09/16/does-cvs-want-to-be-health-focused-tech-
company.aspx
LaVito, A. (2019). Walgreens to close 200 US stores. Retrieved from:
https://www.cnbc.com/2019/08/06/walgreens-to-close-200-stores-in-us.html
Peirson, G, Brown, R., Easton, S, Howard, P. and Pinder, S. (2015). Business Finance. 12th
ed. North Ryde: McGraw-Hill Australia.
Porter, G. and Norton, C. (2014). Financial Accounting: The Impact on Decision Maker. Texas:
Cengage Learning
YahooFinance. (2019). Invest in Walgreens or CVS. Retrieved from:
https://finance.yahoo.com/news/invest-walgreens-cvs-202430720.html
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