WBA, CVS Fall on News of Amazon Entering Prescription Drug Market
The Amazon effect on drugstore stocks
Most of the pharmaceutical stocks took a hit recently as news of Amazon’s (AMZN) potential entry into the pharma space spread. Walgreens Boots Alliance (WBA) and CVS Health (CVS) were among the biggest losers, each falling ~4.9% after CNBC reported on October 6 that Amazon could clarify its strategy of entering the prescription drug market by this Thanksgiving.
Amazon’s move could prove to be a threat for CVS and Walgreens Boots, noted Ana Gupte of Leerink Partners: “AMZN is a meaningful competitive threat to existing players in the drug value chain with its best-in-class mail order fulfillment platform and easy-to-use one stop shopping Retail Pharmacy experience.”
CVS hits 11-month low while Walgreens hits three-year low
On October 11, 2017, Walgreens and CVS lost 10.4% and 8.7%, respectively, since the news was released on October 6. On that date, Walgreens traded at $68.92, hitting its three-year low price. The company’s stock is down 16.7% year-to-date.
On October 11, CVS Health touched its 11-month low and traded at $73.90. The company has lost 6.3% year-to-date.
Competitor Rite Aid (RAD), which recently sold 1,932 pharmacies to Walgreens, has lost 78% of its value year-to-date.
All three drugstore companies have underperformed the S&P 500 Food and Staples Retail Index (-0.3%) and the S&P 500 Index (SPX) (14.1%) year-to-date.
Investors looking for exposure to Walgreens, Rite Aid, and CVS can consider the First Trust Consumer Staples AlphaDEX ETF (FXG), which invests ~7.2% of its portfolio in the three companies.
Read the next article for a comparative picture of WBA’s and CVS’s valuations, earnings, and dividends.