Walgreens stock (NYSE: WBA) is considered a better pick than CVS Health stock (NYSE: CVS) due to its better valuation. WBA stock trades at 0.1x revenues, while CVS trades at 0.2x. This is attributed to Walgreens’ superior revenue growth, profitability, and financial position. Despite both stocks underperforming the broader markets, WBA has seen a sharper decline of 60% compared to CVS’s 15% decrease. CVS has demonstrated better revenue growth, profitability, and financial position but is outperformed by Walgreens in terms of valuation.
Walgreens has seen its sales rise at a 4.5% average annual rate from $122 billion to $139.1 billion over the past few years. This growth has been driven by increased COVID-19 vaccine and testing demand in 2021 and 2022, as well as acquisitions in fiscal 2023. On the other hand, CVS has experienced a higher revenue growth rate of 10% annually, reaching $357.8 billion in 2023 from $268.8 billion in 2020. The company’s revenue growth has been boosted by increased demand for COVID-19 testing and vaccine administration, as well as growth in its healthcare benefits segment.
In terms of profitability, CVS has a better operating margin compared to Walgreens. Walgreens’ operating margin has declined to -5.1% in 2023, while CVS’ margin stands at 4.3%. CVS also has a stronger financial position with lower debt levels and higher cash reserves. However, looking at prospects and current valuation multiples to historical averages, Walgreens is considered the better choice with its stock trading at 0.1x revenues compared to CVS’s 0.2x.
While both companies have positive aspects to look forward to, there are also headwinds to consider. Walgreens may benefit from potential buyers for its UK-based Boots business, but faces challenges in a weak consumer demand environment and declining margins. On the other hand, CVS continues to face higher medical costs as a near-term concern, but is expected to benefit from the growth of its healthcare and pharmacy services businesses. Overall, given its attractive valuation, WBA is seen as a better pick over CVS for the next three years.
In a volatile market environment with high oil prices and elevated interest rates, it is important to consider the potential performance of companies like CVS and Walgreens. While both are expected to see higher levels over the next three years, WBA is likely to outperform CVS. Investors may find more valuable comparisons for companies across industries at Peer Comparisons. Moreover, the Trefis High Quality Portfolio, consisting of 30 stocks, has outperformed the S&P 500 each year over recent years, providing better returns with less risk compared to individual stocks.
