CVS versus Walgreens: Business Health Checkup



CVS Health’s recent business growth

As we discussed in the previous section, CVS Health (CVS) took a few hits in 2016 from its main competitor, Walgreens Boots Alliance (WBA), as Prime Therapeutics and Tricare chose WBA and ended their partnerships with CVS.

As a result, CVS Health’s Retail Pharmacy segment reported a sales decline of 3.8% in 1Q17 and 2Q17, respectively. There was a negative impact of around 460 basis points on same-store sales during 1H17.

CVS Health’s PBM (pharmacy benefits manager) revenues, which account for 70% of the company’s top line, however, increased 8.5% and 9.5%, respectively, during the first two quarters of 2017. Growth was driven by higher pharmacy network claims, brand inflation, and specialty pharmacy growth.

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Forex headwinds hit Walgreens’ top line

Walgreens’ US Retail Pharmacy business, which generates more than 70% of the company’s total sales, has enjoyed decent sales growth. Its top line improved 3.1% in the first nine months of fiscal 2016.

However, the company’s international segments—including retail pharmacies and wholesale business—have seen declining sales over the last several quarters. This decline has been mostly driven by forex headwinds. When adjusted for currency fluctuations, the international numbers look much better.

Comparing recent top-line growth numbers

CVS Health posted total sales of $180.7 billion over the last 12 months (or LTM), up 8.3% YoY. In comparison, Walgreens’ LTM top line fell 0.5% to $116.7 billion. However, as outlined earlier, most of the decrease is due to currency headwinds.

Investors looking for exposure to Walgreens and CVS can consider the Consumer Staples Select Sector SPDR Fund (XLP), which invests close to 9% of its portfolio in the two companies.


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