August 15, 2022, CVS Health Corporation (NYSE:CVS) and Walgreens Boots Alliance, Inc. (NASDAQ:WBA)
These two blue-chip pharmacy chains offer different types of upside as the best stocks to buy now.
Do you know the expression “two sides of the same coin”? That’s precisely why CVS Health Corporation (NYSE:CVS) and Walgreens Boots Alliance, Inc. (NASDAQ:WBA) are the best stocks to buy now.
CVS may be the better call if you’re looking for a stock that’s outperformed WBA in the last 12 months and the previous five years. On the other hand, you can make a stronger case as to why WBA is the best stock to buy now if you’re more focused on finding deeper value, dividend growth, and stronger fundamentals.
But, the bottom line is that these companies are spearheading the future of pharmacy retail and healthcare as they continue adding value for customers and expanding their neighborhood clinic services. CVS Health currently hosts over 1,100 MinuteClinic locations, while Walgreens currently has Village MDs in 22 markets with hopes to have 200 clinics and 100 Walgreens Health Corners open by year’s end.
The market is in arguably the best shape it’s been all year. Last week saw consumer and producer inflation data signifying a light at the end of the tunnel, and several companies reported better-than-expected earnings.
With both CVS and Walgreens making significant in-roads into the future of healthcare, consider each stock’s positive attributes as reasons why they’re both the best stocks to buy now for different reasons.
CVS Health Corporation (NYSE:CVS)
With a double-digit upside despite its strong run, this well-built pharmacy machine continues outperforming and innovating.
Although the CVS stock may be approaching overbought territory, the run it’s been on has been impressive. After seeing a dramatic downturn and bottoming at $88.42 a share on June 17, 2022, the stock has rallied by over 20%. It is inching ever so closer back to its highs.
CVS, though, is one of the best stocks to buy now, not because of flawless margins or deep value.
This major pharmacy and player in the healthcare providers & services industry is one of the best stocks to buy now because of its limitless capability to continue evolving and innovating. Its MinuteClinics have revolutionized health care, and its technological disruptions to virtual care and home health are poised to do the same.
Its strategic acquisitions could also bolster its earnings and revenue growth.
CVS recently bought Omnicare and Aetna for over $40 billion and could be on the cusp of a game-changing acquisition of Signify Health, a primary provider of technological solutions in the home-health sector.
The bottom line is this. CVS has positioned itself to completely change the face of several lucrative industries and appears to be outpacing WBA.
- The U.S. retail clinics market. It could grow from $2.05 billion in 2022 to $4.22 billion by 2029, at a CAGR of 10.8%.
- The U.S. Telemedicine market. This sector was worth just $6.61 billion in 2019 and could reach $25.88 Billion by 2027 at a 15.8% CAGR.
- The U.S. home healthcare services market. This market is forecast to grow from $94.17 billion in 2022 to $153.19 billion by 2029 at a 7.2% CAGR.
However, this only scratches the surface as to why CVS is one of the best stocks to buy now.
A Significant Earnings Beat has CVS Eyeing Even More Growth
CVS posted its Q2 earnings results earlier in the month (August 3, 2022) and easily beat earnings and revenue estimates.
CVS reported $2.40 EPS, walloping the consensus estimate of $2.16 by $0.24. Revenue also came in at $80.64 billion compared to the consensus estimate of $76.38 billion, marking an 11.0% year-over-year increase.
Earnings for CVS Health could grow by 7.74% in the coming year; revenue may expand at a 10.4% 5-year CAGR, and net income is projected to grow 42.9% at a 13.4% average over the next five fiscal years.
Remember that these projections also do not account for the Signify Health acquisition, which could bolster its growth potential even more.
Outstanding Shareholder Yield, Free Cash Flow, and Surprising Value
Although many of CVS’s margins are tighter than ideal, it still has a 7 out of 9 Piotroski Score, which indicates healthy Liquid Balance Sheets, Profitability, and Operating Efficiency.
While its 17.1% gross margin and 11.0% ROCE are solid, the real selling point for CVS is its cash flow and shareholder yield.
First, cash flows can sufficiently cover interest payments, and its 11.4% free cash flow yield is outstanding.
Its 7.2% shareholder yield is also excellent and enough of a reason to crown CVS as one of the best stocks to buy now. Comprising this shareholder yield is an excellent dividend yield of 2.07%. The dividend also has a 3-year annualized growth rate of 19.35% and is poised to increase by another 10.0%.
The most surprising aspect of all this fundamental strength is the value that CVS still carries. WBA still has more attractive multiples, but CVS trades relatively cheaply based on the following.
Technical BUY Signals are Mounting
BarChart sees several near-term, medium-term, and long-term technical BUY signals for CVS. These indicators include the stock’s
- 20 Day Moving Average
- 20 – 50 Day MACD Oscillator
- 20 – 100 Day MACD Oscillator
- 50 Day Moving Average
- 100 Day Moving Average
- 150 Day Moving Average
- 200 Day Moving Average
BarChart further notes that despite CVS’s rally, it has yet to touch any of its resistance points, potentially at $107.22, $108.04, and $109.21.
CVS is Surging Yet Still Has Double-Digit Upside
TipRanks notes that 12 Wall Street analysts offered 12-month price targets for CVS Health in the last 3 months. It currently has a high price target of $130.00, a low of $102.00, and an average of $118.92. The average price target represents an 11.78% upside from August 12, 2022’s closing price of $106.39.
However, based on the number of price targets it received above its average, CVS’s true upside is likely closer to $130.00. Consider the following actions since August 4, 2022
- Mizuho- $120
- UBS Group- $127.00
- Deutsche Bank- $120.00
- Cowen– $120.00
CVS’s year-to-date low and high are $88.42 and $111.25, respectively.
Walgreens Boots Alliance, Inc. (NASDAQ:WBA)
Another prominent pharmacy offers a cheaper and deeper value alternative to CVS.
Walgreens may not have the sexy returns CVS has had in 2022, nor does it have the same growth prospects. But this Company is no slouch. It operates 8,965 retail stores under the Walgreens and Duane Reade brands, five specialty pharmacies and is making headway of its own with neighborhood clinics. The plan is to have 200 clinics and 100 Walgreens Health Corners open by year’s end.
Walgreens is one of the best stocks to buy now because of its flawless fundamentals and dividend aristocracy. We will go into deeper detail, but compared to CVS, Walgreens has a perfect Piotorski Score and a higher dividend yield that’s increased for almost 50 years in a row. CVS, in comparison, has just a 1-year track record.
You can’t go wrong with either stock; it only depends on your investment philosophy. You won’t get the insane growth projections and analyst upside with WBA. But if you’re more focused on value, WBA’s stock price is over 50% cheaper than CVS, its multiples all point to a more profound discount, and its stock price still trades around its 2022 lows and -26.2% below its highs.
Consider Walgreens for its Triple-Digit Net Income Growth Potential, Dividend and Deep Value
Walgreens Boots Alliance last posted its earnings results on June 30, 2022, and EPS and revenue estimates were mainly in line with analyst projections. EPS came in at $0.96, topping analysts’ consensus estimates by $0.01, and revenue came in at $32.60 billion, beating analysts’ expectations of $32.23 billion.
While this didn’t necessarily turn any heads regarding how badly it beat analyst forecasts or year-over-year growth, Finbox still projects Walgreens’ net income to grow 117.1% and average 26.2% over the next five fiscal years.
Perhaps that speaks to the deep discount it trades at in terms of stock price and valuation multiples like its
Fundamentally, it trades with a strong 9.8% free cash flow yield and a perfect 9 out of 9 Piotroski Score. A Piotroski Score of 9 indicates that its Balance Sheets, Profitability, and Operating Efficiency are flawless. Margins like its 21.8% gross margin and 21.1% ROCE reflect this.
But, it’s the Company’s shareholder yield and dividend yield that truly makes it the best stock to buy now and gives it a considerable edge over CVS. It is challenging to turn down a 13.6% shareholder yield and a 4.7% dividend yield that’s increased for 47 years in a row.
Analysts See More Room to Run
TipRanks notes that 10 Wall Street analysts offered 12-month price targets for WBA in the last 3 months. It has a high forecast of $49.00, a low of $39.00, and an average of $43.70. The average price target represents a 7.66% upside from August 11, 2022’s closing price of $40.59.
WBA’s year-to-date low and high are $36.57 and $55.00, respectively.