Updates in 4th paragraph that Target now has 80 clinic locations in seven states.
NEW YORK (TheStreet) -- When it comes to in-store health clinics, Walgreen (WAG) is being left in the dust by competitor CVS Caremark (CVS) - Get Free Report , and that's not healthy for Walgreen stock.
At around $61, Walgreen shares are up 6% for the year to date. CVS stock, at around $79, is up nearly 11% for the same period. But the fight isn't just between these companies: Both are also feeling the heat of increasing competition from discount retailers Wal-Mart (WMT) - Get Free Report and Target (TGT) - Get Free Report .
Why? Because thanks to the Affordable Care Act there are now millions of consumers whose coverage for preventive care is now paid for by insurance. While the clinics don't replace the family doctor, they can be expected to draw those who need the services provided by the clinics' licensed nurse practitioners, including treating common minor ailments and offering some screenings and vaccinations, among others. That, in turn, drives traffic into the stores.
These clinics have been very successful for CVS, which has 836 of its "MinuteClinics" in 28 states and the District of Columbia. Walgreen, by contrast, has about 400 in 19 states. Wal-Mart has 102 clinics in 19 states. Target has over 80 locations in seven states, according to a company representative.
There's still plenty of room for growth for Walgreen, and the company has plans to add more clinics. "Although our current health care clinic business does not reach the level required to disclose its revenue, we intend to continue growing the business. We will open approximately 40 more clinics in the next 12 months," said Walgreen's spokesman Michael Polzin.
Recently, Walgreen released the results of a study that highlighted the dramatic increase in U.S. of patients relying on nurse practitioners at retail clinics to provide chronic and preventive health services, jumping to 17% in 2013 from 4% in 2007.
CVS still has nearly 90% of its locations without health clinics and Walgreen's more than 95%. Neither Wal-Mart nor Target have clinics in more than 100 of the many stores each entity operates.
CVS is winning the race for providing the most health care clinics in the U.S. with Walgreen a distant second. Currently only 33% of Americans live within 10 minutes of a Walgreen Healthcare Clinic, according to estimates provided by both the company and the Convenient Care Association.
Let's see a comparative stock price chart that illustrates how shares of CVS and Walgreen have performed.
WAG data by YCharts
Clearly Walgreen's is losing the stock price race as well, which may provide an opportunity for patient investors.
Of the two companies, CVS appears to be more determined to grow its number of health clinics. The company has publicly stated it plans on having more than 1,500 of its MinuteClinics within four years. To my knowledge Walgreen hasn't set a growth target for the over 90% of its stores without a retail clinic.
The sleeping giant in this fray appears to be Walgreen. With over 7,800 of its U.S. locations still without a clinic plus all those newly insured Americans seeking care, Walgreen must work hard to take advantage if it wants a healthier future.
TheStreet Ratings team rates WALGREEN CO as a Buy with a ratings score of B+. TheStreet Ratings Team has this to say about their recommendation:
"We rate WALGREEN CO (WAG) a BUY. This is driven by several positive factors, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, impressive record of earnings per share growth, compelling growth in net income, largely solid financial position with reasonable debt levels by most measures and solid stock price performance. We feel these strengths outweigh the fact that the company shows low profit margins."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The revenue growth came in higher than the industry average of 4.8%. Since the same quarter one year prior, revenues slightly increased by 5.9%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- WALGREEN CO has improved earnings per share by 15.4% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past year. We feel that this trend should continue. During the past fiscal year, WALGREEN CO increased its bottom line by earning $2.56 versus $2.42 in the prior year. This year, the market expects an improvement in earnings ($3.30 versus $2.56).
- The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and greatly outperformed compared to the Food & Staples Retailing industry average. The net income increased by 15.7% when compared to the same quarter one year prior, going from $624.00 million to $722.00 million.
- The stock has not only risen over the past year, it has done so at a faster pace than the S&P 500, reflecting the earnings growth and other positive factors similar to those we have cited here. Looking ahead, the stock's rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry. We feel, however, that the other strengths this company displays justify these higher price levels.
- WAG's debt-to-equity ratio is very low at 0.23 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Despite the fact that WAG's debt-to-equity ratio is low, the quick ratio, which is currently 0.61, displays a potential problem in covering short-term cash needs.
- You can view the full analysis from the report here: WAG Ratings Report
At the time of publication, the author held no positions in any of the stocks mentioned.
This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.