CVS vs Walgreens (WBA) | Which Stock is Better? | Pharmaceutical Stocks

TL;DR

Analyzing the financial performance of CVS and Walgreens to determine which stock is a better investment option.

Transcript

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Key Insights

• 🎭 Walgreens has been performing well with a 9% return on invested capital and decreasing shares outstanding.
• 🥶 CVS has made significant acquisitions like Aetna and Rite Aid, but their five-year free cash flow to long-term debt ratio is a concern.
• 😘 Both companies have low profit margins, but are expanding into healthcare and pharmaceuticals.
• ❓ Dividend yield is 2.3% for CVS and 3.8% for Walgreens.
• 🌐 Walgreens has a larger global presence with 21,000 locations compared to CVS's 10,000.
• ⚾ Stock analyzer tool suggests around 10-12% potential return for Walgreens based on conservative assumptions.
• 😐 Comparatively, CVS is currently in a neutral position in terms of stock price movement.

Questions & Answers

Q: Why did you initially buy Walgreens and not CVS?

Walgreens was recommended by a user and although it didn't meet initial screening criteria, the cash flow analysis showed potential. CVS was not remembered much but was also analyzed.

Q: What are the key factors to consider when analyzing these stocks?

Look at return on invested capital, shares outstanding, debt levels, dividend yield, profit margins, and revenue and free cash flow trends.

Q: What are the assumptions used in the stock analyzer tool for CVS and Walgreens?

Assumptions include revenue growth, profit margin, and free cash flow margin. The stock analyzer tool shows a current PE of 15 for CVS and a stock price of $87. For Walgreens, the stock price is $51.

Q: Which stock is recommended for investment based on the analysis?

Walgreens is considered a better investment option due to factors such as lower debt levels, improving free cash flow, and larger presence globally.

Summary & Key Takeaways

• Walgreens has been performing well, with a return on invested capital of 9% and decreasing shares outstanding. They also have a lower debt level and their free cash flow is rebounding.

• CVS has acquired Aetna in 2018 and made big moves with Rite Aid. Their five-year free cash flow to long-term debt ratio is concerning, but it's understandable due to their expansion and acquisitions.

• Both companies have low profit margins, but are getting into the pharmaceutical and healthcare sectors. Dividend yield is 2.3% for CVS and 3.8% for Walgreens.