CVS and Walgreens Show Why Investment Goals Matter

Before the pandemic, many drugstore chains were adapting to a wellness model CVS and Walgreens are making significant inroads into this space What are the current and future prospects for the two stocks

At first glance, CVS Health (NYSE: CVS) seems significantly superior to Walgreens Boots Alliance (NYSE: WBA). In fact, over the past 12 months, and even over the past five years, these are two stocks on different trajectories.

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But this is a time when understanding your "why" for owning a stock is so critical. This article will analyze the current and future prospects of the two stocks and explain why each has a point to make to different investors.

The pharmaceutical space is changing

Even before the pandemic, many drugstore chains were adapting to a wellness model. The idea is to become a destination for customers to manage their general healthcare rather than just a place where they go to pick up a prescription. By taking on the role of a neighborhood clinic, pharmacy chains add more value for their patients.

And CVS and Walgreens are making significant inroads into this space. CVS Health hosts more than 1,100 MinuteClinic sites, which is just one of the services provided by the company's HealthHUB initiatives.

For its part, Walgreens offers its Village MD and Walgreens Health initiatives. According to the company's latest earnings report, the company has seeded the first in 22 markets and plans to open about 200 clinics by the end of 2022. And the company plans to open about 100 Walgreens Health Corners in here the end of the year.

And both companies are active in virtual care with the ability for patients to access services through mobile apps and telehealth services. The Covid-19 pandemic has made virtual care essential, but it has also served as a proof of concept that for some patients may be a choice for managing chronic conditions.

Will an acquisition have a "significant" impact on CVS stock?

CVS stock has outperformed the market over the past year. And the stock is gaining momentum thanks to a Wall Street Journal report that it has made an offer to buy Signify Health. The acquisition makes sense if CVS intends to branch out into the home healthcare sector. Signify Health uses technology solutions to facilitate home care. And, as the Journal reported, the company “offers home health assessments for Medicare Advantage and other government-run managed care plans.”

As of this writing, it is unclear if the acquisition will go through. However, if so, it could signal the next step for a stock that has climbed 26% in the past 12 months and is essentially flat for the year. The company is expected to post single-digit revenue and profit growth over the next five years without the Signify Health acquisition. Analysts are also moderately bullish on the stock, giving it a 12% upside.

That said, the company recently went on a buying spree after buying Omnicare and Aetna for a total cost of over $40 billion. Although it looks like the company's free cash flow (FCF) should be more than enough to cover the purchase, short-term investors may face some volatility.

Walgreens Boots Alliance is an undervalued dividend stock

Unlike CVS Health, Walgreens has seen its stock price drop more than 50% in the past five years. And WBA stock is down 16% in the past 12 months alone. Worse still, the short interest on the stock is 3 times higher than that of CVS stock. There is clearly a bearish sentiment on Walgreens.

But there are positives if you're looking for under-the-radar value stocks. For starters, Walgreens pays a sustainable and growing dividend. In fact, the company has increased its dividend in each of the past 47 years.

And, by any objective measure, WBA stock is undervalued. The stock trades at just over 7x earnings and the company performs above the industry average in key areas such as profit margin, yield...