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Why Have Pharmacy Chain Stocks Outperformed in 2015?

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Aug. 18 2020, Updated 5:17 a.m. ET

Share price drivers for CVS Health and peers

CVS Health (CVS) stock is up almost 14% this year. It’s also up by 7.3% since the Target deal was announced on June 15 and by 8.4% since the company announced its intention to acquire Omnicare (OCR) on May 21. The markets have looked favorably on both transactions.

In comparison, Walgreens Boots Alliance (WBA) is up by 23.9% and Rite Aid (RAD) by 14.2%. WBA got a boost from its strong 3Q15 earnings, which it released on July 9. The stock is up by more than 5% since July 8. Adjusted earnings per share (or EPS) rose 22.9% to $1.02. Retail pharmacy comps (comparables) in the United States were up 6.3% in 3Q15.

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Rite Aid’s (RAD) stock has benefited, since the company is in the midst of a turnaround. RAD has tried to become a more integrated pharmacy player. RAD’s acquisitions of EnvisionRx and RediClinic has given the company an opportunity to be a more integrated player like CVS. RAD has also increased its focus on wellness and since 2010 has remodeled more than 1,600 stores to a wellness theme.

Shareholder returns

Pharmacy chains have outperformed the broader S&P 500 index (SPY) (IVV) (VOO) in 2015. CVS Health stock has provided total returns of 15.1% year-to-date. In comparison, peers Walgreens Boots Alliance (WBA), Rite Aid (RAD), and Diplomat Pharmacy (DPLO) have provided returns of 24.9%, 14.2%, and 66.8% year-to-date.

The S&P 500 Index (SPY) (IVV) (VOO) and the S&P 500 Food and Staples Retailing Index (XLP) (FXG) (XRT) have provided returns of 1.6% and 3.5%, respectively, through July 27.

CVS, Walgreens Boots Alliance, and Rite Aid together constitute ~3% of the portfolio holdings of the SPDR S&P Retail ETF (XRT). CVS and Walgreens Boots Alliance together constitute ~1.7% of the portfolio holdings of the iShares S&P 100 ETF (OEF).

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