Walgreens Boots Alliance (WBA), CVS Health (CVS), and Rite Aid (RAD): Buy, Hold or Sell?

The dynamic combination of changing demographics, increasing healthcare demands, and expanding pharmaceutical markets places the drugstore sector in a favorable position for substantial growth.

Therefore, quality stock CVS Health Corporation (CVS) might be a solid buy. However, I think Walgreens Boots Alliance, Inc. (WBA) is best kept on hold, and Rite Aid Corporation (RAD) might be best avoided, considering its bleak fundamentals.

As per World Health Organization, the proportion of the global population aged 60 and above is projected to experience an uptick from 12% in 2015 to 22% by 2050. This accelerated aging trend comes hand in hand with a heightened susceptibility to chronic ailments among the elderly population.

Consequently, this surge in chronic diseases is anticipated to spur a greater demand for generic pharmaceuticals, leading to a rapid expansion of the market.

As a result, the Generic Drugs Market is expected to grow from $396.81 billion in 2023 to $488.14 billion by 2028, at a CAGR of 4.2%.

Moreover, given the ease of ordering online, the global E-pharmacy Market is expected to grow from $92.28 billion this year to $174.57 billion by 2028, at a CAGR of 13.6%.

Additionally, the growth of the e-pharmacy market is attributed to a rise in internet consumers, increased access to web-based and online services, and the rising implementation of e-prescriptions in hospitals and other healthcare services.

Furthermore, according to Deloitte, health expenses could triple to around $12 trillion by 2040, constituting 26% of the GDP if present trends persist. Moreover, Verified Market Research indicates that the worldwide healthcare market is expected to reach $665.37 billion by 2028.

Meanwhile, the US is projected to spend $6.20 trillion by 2028 on healthcare, up from $4.30 trillion in 2021, according to the Centers for Medicare and Medicaid Services. This surge in healthcare spending is likely to fuel increased demand for both prescription and over-the-counter medications.

Stock to Buy:

CVS Health Corporation (CVS)

CVS is a health service provider operating through four segments: Health Care Benefits; Pharmacy Services; Retail/LTC; and Corporate/Other. Its offerings include health & wellness services, health plans, pharmacy services, and prescription drug coverage.

CVS’ trailing-12-month EBIT and EBITDA margins of 4.17% and 5.42% are higher than the industry averages of 0.24% and 5.23%. Its trailing-12-month asset turnover ratio of 1.41x is 275.2% higher than the industry average of 0.38x.

In July 2023, CVS announced the launch of Caremark® Cost SaverTM to help lower pharmacy out-of-pocket drug costs for CVS Caremark clients' members. Through the new program, eligible members will have automatic access to GoodRx's prescription pricing to allow them to pay lower prices, when available, on generic medications in a seamless experience at the pharmacy counter.

On August 1, CVS paid a quarterly dividend of sixty and a half cents ($0.605 cents) per share on the common stock of the corporation.

The company pays an annual dividend of $2.42, which translates to a yield of 3.30% on the current price level, higher than its four-year average dividend yield of 2.70%. The company has raised its dividend payment at a CAGR of 5.8%.

CVS’ total revenues increased 10.6% year-over-year to $88.92 billion in the fiscal second quarter that ended June 30, 2023. Its product revenue rose 6.6% year-over-year to $60.54 billion. The company reported an adjusted operating income of $4.48 billion. Moreover, its adjusted EPS amounted to $2.21.

Analysts expect CVS’ revenue to rise 8.6% year-over-year to $88.12 billion in the current fiscal quarter ending September 2023. Its EPS is expected at $2.13 for the same quarter. Also, the company has surpassed both the revenue and EPS estimates in each of the trailing four quarters, which is impressive.

CVS’ shares have gained 5.6% over the past three months to close the last trading session at $72.72.

CVS’ POWR Ratings reflect this promising outlook. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.

CVS has a B grade for Value and Stability. It is ranked first among five stocks in the Medical – Drug Stores industry.

Click here for the additional POWR Ratings for Growth, Sentiment, Momentum, and Quality for CVS.

Stock to Hold:

Walgreens Boots Alliance, Inc. (WBA)

WBA operates as a pharmacy-led health and beauty retail company. It operates through two segments, the United States and International.

WBA’s trailing-12-month asset turnover ratio of 1.42x is 55.1% higher than the industry average of 0.92x, whereas its trailing-12-month EBIT margin of 0.75% is 89.5% lower than the industry average of 7.18%.

On August 3, WBA announced that it had sold shares of AmerisourceBergen Corporation (ABC) pursuant to prepaid variable share forward transactions executed through a registered public offering for current proceeds of approximately $1.60 billion.

In addition, WBA entered into a concurrent share repurchase by ABC for proceeds of approximately $250 million, subject to the consummation of the purchase and sale of the shares of ABC in the registered public offering.

On Jul 13, WBA and Freenome, a biotechnology company with a comprehensive multiomics platform for the early detection of cancer using a standard blood draw, announced a multi-year relationship to advance clinical studies of Freenome's blood-based tests for the early detection of cancer.

WBA will combine its national footprint, patient insights, compliant recruitment technology, and local infrastructure to engage diverse patient populations in Freenome's multi-cancer research program.

On July 12, WBA declared a quarterly dividend of 48 cents per share, unchanged from the previous quarter, payable on September 12, 2023.

WBA pays an annual dividend of $1.92 that yields 6.71% on the current market price, higher than the 4-year average dividend yield of 4.41%.

For the fiscal third quarter that ended May 31, 2023, WBA’s sales rose 8.6% year-over-year to $35.42 billion. Its U.S. Retail Pharmacy segment sales amounted to $27.90 billion, an increase of 4.4% from the year-ago quarter. However, net earnings attributable to WBA and net earnings per share came to $118 million and $0.14, down 59.2% and 57.6% year-over-year, respectively.

While Street expects WBA’s revenue to increase 7% year-over-year to $34.70 billion in the fiscal fourth quarter ending August 2023, its EPS is expected to decline 13% year-over-year to $0.70 for the same quarter.

The stock has declined 3.5% over the past month to close the last trading session at $28.19.

WBA has an overall C rating, equating to a Neutral in our POWR Ratings system. It has an A grade for Growth and a C for Value, Stability, and Quality. It is ranked #3 in the same industry.

Beyond what is stated above, we’ve also rated WBA for Sentiment and Momentum. Get all WBA ratings here.

Stock to Sell:

Rite Aid Corporation (RAD)

RAD operates a retail drugstore network in the United States through two segments, Retail Pharmacy and Pharmacy Services. The company runs over 2,300 retail pharmacies in 17 states and sells brand and generic prescription medications.

RAD’s trailing-12-month EBIT and EBITDA margins of 0.04% and 1.19% are 99.4% and 88.8% lower than the industry averages of 7.18% and 10.61%.

In the fiscal first quarter that ended June 3, 2023, RAD’s revenue decreased 6% year-over-year to $5.65 billion. Its adjusted net loss and adjusted net loss per share rose 14% and 15.1% year-over-year to $40.11 million and $0.73. Moreover, the company’s adjusted EBITDA decreased 8.4% from the previous-year quarter to $91.72 million.

RAD’s EPS and revenue are expected to decrease 112.9% and 5.7% year-over-year to negative $1.34 and $5.56 billion for the fiscal second quarter ending August 2023. The company has failed to surpass the EPS estimates in each of the trailing four quarters, which is disappointing.

The stock has slumped 47.6% year-to-date and 84.2% over the past year to close the last trading session at $1.75.

RAD’s POWR Ratings reflect its bleak prospects. The stock has an overall rating of D, equating to a Sell in our proprietary rating system.

It has a D grade for Momentum, Stability, and Sentiment. RAD is ranked last in the same industry.

To access RAD’s additional POWR Ratings for Growth, Value, and Quality, click here.

What To Do Next?

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CVS shares were trading at $64.88 per share on Thursday morning, down $7.84 (-10.78%). Year-to-date, CVS has declined -28.74%, versus a 15.94% rise in the benchmark S&P 500 index during the same period.

Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.

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