3 Drugstore Stocks Prescribed for Your Portfolio

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With the dollar, healthcare costs and consumer sentiment all on the rise, there is an industry that is the crux of these three powerful trends.

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I’m talking about pharmacies and drugstores.

The U.S. drugstore business brings in over $260 billion annually, and it’s growing at a solid 1.2% clip each year. That’s a lot of antacid and ibuprofen. So today, let’s look at three of the nation’s top drugstore chains, and see which one I’ll write a prescription for.

CVS Health Corp (CVS)

CVS Health Corp (NYSE:CVS) may be the second-largest drugstore chain in the U.S. for now, but that may not last for long.

CVS Health announced plans to acquire Omnicare, Inc. (NYSE:OCR), the largest provider of long-term care pharmacy services. With a sticker price of $12.7 billion, the deal includes Omnicare’s 160 locations across the U.S.

Omnicare has three decades of experience in serving the senior care industry. So, this acquisition will help CVS Health better serve the growing baby boomer population. CVS Health expects the deal to add 20 cents per share to adjusted earnings in 2016.

This deal builds upon an already strong base for sales and earnings. Earlier this month, CVS announced that first-quarter revenues increased 11.1% and net earnings rose 8% over a year ago. Looking ahead to fiscal year 2015, CVS stock expects adjusted earnings from continuing operations between $5.08 and $5.19 per share.

CVS Health also knows how to treat its shareholders. CVS stock has a decent dividend yield of 1.37% and an annual payout of $1.40 per share. CVS Health is also in the process of a whopping $10 billion share repurchase program, which is always a good sign of a strong stock. CVS is an A-rated “strong buy.”

CVS Health’s top competitors are Walgreens Boots Alliance Inc (NASDAQ:WBA) and Rite Aid Corporation (NYSE:RAD). So, let’s see how they stack up against each other.

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Walgreens Boots Alliance Inc (WBA)

Now, you’ll see that WBA also earns an A in Portfolio Grader, but there are a few reasons that I prefer CVS.

First, CVS has higher forecasted earnings growth. Last December, Walgreens acquired Switzerland’s Alliance Boots. So, costs associated with the merger will weigh on earnings over the next several quarters. Walgreens Boots Alliance plans to reduce costs by $1.5 billion over the next three years, but there are going to be some growing pains in the meantime.

Second, WBA has a higher forward price-to-earnings ratio (19) than CVS (17), which means that Walgreens Boots Alliance is slightly overvalued compared with forecasted earnings.

Third, while CVS is leading the industry with its $10 billion share repurchase program, Walgreens has been disappointing investors with its $3 billion program. While WBA is a solid “buy” in its own right, I consider CVS to be the superior stock.

Rite Aid Corporation (RAD)

Rite Aid is the weakest out of the three in terms of buy pressure, and to add insult to injury, RAD doesn’t have any stock buyback program to speak of. Rite Aid also does not pay any sort of dividend to its investors.

RAD does have decent fundamentals, meeting or exceeding analysts’ estimates with earnings, but that’s not enough to consider Rite Aid stock a good buy. Rite Aid was recently downgraded from a B-rated “buy” to a C-rated “hold” in Portfolio Grader.

For the current quarter, analysts estimate per share earnings of $0.04 and an average revenue estimate of $6.68 billion, which translates to a 25% year-on-year drop in earnings and just 3.4% sales growth. RAD is a C-rated “hold.

As you can see, CVS is the strongest stock, with excellent buying pressure and a much more consistent track record than WBA and RAD.

Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip GrowthEmerging GrowthUltimate GrowthFamily Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/05/3-drugstore-stocks-cvs-health-wba-walgreens-rad-rite-aid/.

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