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. I’m talking about pharmacies and drugstores. The U.S. drugstore business brings in over $250 billion annually, and it’s growing at a solid 2.2% 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) may be the second-largest drugstore chain in the U.S. for now, but that may not last for much longer. Earlier this year, CVS announced that it will stop selling tobacco products in an effort to not only have an edge over competitors but also to better brand itself as a healthcare provider. CVS’ business plan seems to working out, as CVS is by far the strongest performing pharmacy company. Let’s take a close look at why CVS stock stands out from the pack.
CVS Health has had a solid year. In the third quarter, CVS’ net revenue jumped by 10% year-on-year to $35.02 billion, topping analysts’ expectations of $34.75 billion in revenues. Breaking it down, retail pharmacy revenues increased by 3.1% to $16.75 billion, while pharmacy services rose 15.7% to $22.50.
Looking ahead to the fourth quarter, analysts estimate that CVS’ earnings per share will be $1.20, while growth is estimated to be 7.1%. The average revenue estimate for the fourth quarter is $35.15 billion. CVS Health also knows how to treat its shareholders. CVS has a decent dividend yield of 1.21% and an annual payout of $1.10. CVS is also in the process of a $6 billion share repurchase program, which is always a good sign of a strong stock. CVS stock is an A-rated “strong buy.”
CVS Health’s top competitors are Walgreen Company (WAG) and Rite Aid Corporation (RAD). While CVS, Walgreen and Rite Aid fall in the same range when it comes to forward price-to-earnings ratios (one of my favorite valuation metrics), Walgreen and Rite Aid lack in other key fundamental metrics that CVS stock excels in.
Walgreen has had a shaky year, just meeting or missing analysts’ estimates for three quarters. While WAG stock has decent buying pressure and $3 billion share repurchase program, Walgreen only increased its stock repurchase program after being pressured by shareholders. Walgreen’s credit rating was also downgraded a few months back by Moody’s Investors Service.
Looking ahead, WAG stock’s EPS estimate for the first quarter is 93 cents, translating to 16.75% annual earnings growth. The average revenue estimate for the quarter is $20.6 billion. Walgreen does provide investors with a dividend yield of 1.98% or $1.35 annual payout. WAG stock is a B-rated “(cautious) buy” because even a slight drop in buying pressure could send it back down to a “hold.”
Rite Aid is probably 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 stock does have decent fundamentals, meeting or exceeding analysts’ estimates with earnings, but that’s not enough to consider RAD stock a good buy.
Portfolio Grader recently downgraded Rite Aid from a B-rated “buy” to a C-rated “hold.” For the fourth quarter, analysts estimate an EPS of 5 cents and an average revenue estimate of $6.61 billion, which puts the earnings growth estimate for the fourth quarter at 16.7%. RAD stock is a C-rated “hold.”
As you can see, CVS stock is the strongest of the three, with excellent buying pressure and a much more consistent track record than its competitors.
Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip Growth, Emerging Growth, Ultimate Growth, Family 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.