Walgreens stock (NYSE: WBA) is considered a better pick than CVS Health stock (NYSE: CVS) due to its better valuation. WBA trades at 0.1x revenues compared to 0.2x for CVS, reflecting better revenue growth, profitability, and financial position. While both stocks have underperformed the broader markets, WBA has seen a sharper decline of 60% compared to 15% for CVS over the past three years. However, both have struggled to consistently beat the S&P 500.
CVS has shown better revenue growth, with a 10% average annual increase from 2020 to 2023, reaching $357.8 billion. Walgreens, on the other hand, saw a 4.5% average annual growth to $139.1 billion over the same period. While both companies benefited from increased demand for COVID-19 testing and vaccines, CVS’ healthcare benefits segment saw a significant 40% revenue increase between 2020 and 2023, driven by growth in total medical membership.
In terms of profitability, CVS holds the advantage with a higher operating margin of 3.6% in the last twelve months compared to -1.4% for Walgreens. CVS has also managed its debt better, with a lower debt as a percentage of equity at 105% compared to 244% for Walgreens. Additionally, CVS has a higher cash as a percentage of assets at 5.2%, indicating a better debt position and more cash cushion.
While CVS has shown better revenue growth, profitability, and financial position, the current valuation multiples suggest that Walgreens may be the better choice. Walgreens’ stock is currently trading at 0.1x revenues, below its five-year average of 0.3x, while CVS is trading at 0.2x revenues, above its five-year average of 0.4x. Both companies have positives and headwinds to consider, with Walgreens potentially benefiting from talks to sell its UK-based Boots business, while CVS may face challenges from higher medical costs.
Overall, WBA is seen as a better pick over CVS for the next three years despite the strengths of CVS in revenue growth and profitability. While WBA may outperform CVS, it is important to consider how Walgreens’ peers fare on similar metrics. Investors can also find valuable comparisons for companies across industries through Peer Comparisons provided by Trefis.
