This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

As Walgreens Stock Goes on Sale, Is CVS Now the Better Buy?

Stocks in this article: WAG CVS COST KR

NEW YORK (TheStreet) -- Walgreens' (WAG) decision not to pursue a tax inversion in Switzerland after it buys the British chain Alliance Boots surprised the market and caused the stock to plunge over 12.6% in a day, to $60.42 as of 10:30 a.m.

At the same time arch-rival CVS Caremark (CVS) announced earnings that disappointed some as its recent decision to stop selling cigarettes bit into profits. Pharmacy sales saved the company, however, and the stock was down only 0.21% to $77.10.

Read More: Florida, Nevada Can't Win for Losing on Mortgage Crisis

While CVS and Walgreens may appear to be similar, in fact they are quite different -- and growing more so. CVS also owns Caremark, a pharmacy benefit manager, which handles drug sales and bookkeeping for large corporations. Walgreens doesn't have a PBM, but it's going to have a big European presence once the Alliance purchase is complete, and it already holds a 45% stake in the British company.

While both chains have said they want to emphasize clinics staffed by nurse practitioners to handle routine care, CVS has been more aggressive. It now has over 800 MinuteClinics in more than half the states, double the number of Walgreens Healthcare clinics.

The two also differ in how they fit the new model of care into existing stores. CVS is maintaining the look and feel of a convenience store with a pharmacy counter. Walgreens is spending about $1 million to remodel each of its stores under the name Well Experience. It has run into criticism for letting pharmacists come out from behind their counter in the new units

Alliance Boots will transform Walgreens' numbers even in absence of a headquarters change, because it has over 3,100 units along with its own private label products.

After the merger, the Walgreens and Alliance Boots chains together will have over 11,000 units, against 7,600 for CVS

Read More: Why Target's New Comments Should Worry Investors

Combining the last reported yearly results, the Walgreens-Alliance merger would seem to create a company with $114 billion in annual sales -- larger than Costco (COST) or Kroger (KR) -- with profits of about $4.7 billion and nearly $7 billion in operating cash flow each year. (This is a back-of-the-envelope calculation, and real numbers will vary once the deal is in place.)

Compare that to CVS' $126 billion in revenue, $4.6 billion in earnings and $5.8 billion in free cash flow last year. The merged Walgreens-Alliance and CVS are pretty comparable.

On an earnings basis, this makes CVS a relative bargain. Investors are paying a price-to-earnings multiple of 19.6 for its earnings, against 23.5 for Walgreens before last night. The fall of Walgreens stock killed $9 billion in market cap, leaving it with a valuation of about $57 billion, and putting the two companies' P/E back into balance.

1 of 2

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 17,804.80 +26.65 0.15%
S&P 500 2,070.65 +9.42 0.46%
NASDAQ 4,765.38 +16.9840 0.36%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs