CVS Stock vs. WAG Stock: It’s Not Even Close

CVS posts solid earnings, drops cigarettes from its stores

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CVS Stock vs. WAG Stock: It’s Not Even Close

Things to Like about WAG Stock

International expansion: In August 2012, Walgreen acquired 45% of Alliance Boots, a European drug store chain with 3,100 stores in 20 countries. Paying $4.03 billion in cash for 83.4 million shares, WAG has the option to buy the remaining 55% for approximately $5.1 billion and 144.3 million shares. The move gives the company a nice entry into the European market. In the first quarter ended Nov. 30, 2013, the European investment generated $151 million in equity earnings. Interestingly, Alliance Boots has a private equity group that invests in small- and medium-sized health and wellness businesses. Its first acquisition was announced Feb. 7; expect more in the future.

Scale: Ever since Walgreen’s disastrous spat with Express Scripts (ESRX) finally ended in July 2012, CEO Greg Wasson has been busy building more heft. First, he made a deal with Alliance Boots and then he hooked up WAG with a 10-year drug distribution deal in the middle of 2013, worth something like $28 billion in drug purchases annually. Facing constant pricing pressures, the best way to keep profits growing is to better control the flow of those drugs. By partnering with Alliance Boots and AmerisourceBergen (ABC) it ensures it has more to say in the future about the price it pays for drugs, which should give comfort to WAG stock investors.

Cigarettes: It’s hard to believe but Walgreen could actually benefit from continuing to sell cigarettes. Goldman Sachs (GS) continues to rate WAG stock a “conviction buy” suggesting it could gain as much as three cents in earnings per share from CVS’ exit. With January same-store sales failing to meet expectations, WAG stock could use a little bit of cheer. Ultimately I think it will also exit cigarette sales, but not before taking some profits away from its chief rival.

WAG vs CVS Stock: Who Wins?

Since Walgreen has gotten back with ESRX its stock has doubled. So I’m not expecting WAG stock to rise that quickly again. With the easy money off the table and CVS stock possessing a much better valuation, I believe CVS stock wins this horse race in comfortable fashion.

As of this writing, Will Ashworth did not own a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, http://investorplace.com/2014/02/cvs-stock-wag-stock/.

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