In The Ring
The U.S. drugstore market is dominated by CVS https://investors.cvshealth.com/investors/default.aspx and Walgreens (WBA)https://investor.walgreensbootsalliance.com/home/default.aspx .
Walgreens operates 8,100 stores, plus their purchase of Rite Aids (RAD) 1,932 stores. CVS operates 9,700 pharmacies with a more diversified business model as one of the largest Pharmacy Benefits Managers (PBM) and retail health clinics.
Mergers and Acquisitions
CVS acquisition of Omnicare was an entry in the long-term and post-acute care market. Under its MinuteClinic banner they are the largest operator of retail health clinics. They’re ahead of schedule in synergy from the Aetna integration. CVS generates close to 70% of its sales by offering full PBM, 3rd party administrators, with the acquisition of Caremark. They also have CVS Beauty Mark “body positivity” movement to rid aisles of digitally altered products.
Walgreens wanted to enter the PBM services through the acquisition of Rite Aid (RAD), but the deal was scrapped by FTC and they wound up buying 1,932 Rite Aid stores. Walgreens formed an alliance with Prime Therapeutics as “Alliance Rx Walgreen Prime”. They beat CVS to sign exclusive deals with a couple of other PBMs. WBA joined the Tricare network managed by Express Scripts for military members when CVS was taken out of the network.
Who Else is Jumping in the Ring?
Giant Amazon (AMZN) bought the online pharmacy “PillPack” in 2018. PillPack offers mail delivery service, the alternative to traditional drug stores. However, PillPack must have the necessary consent from patients to switch. CVS and Walgreens are putting their dukes up over valuable customers. One single customer can mean thousands of dollars of co-pays and insurance.
Walgreens has paid regular dividends for the last 25 years, and has increased them for the last 42 years. Its stock currently offers a dividend yield of 2.2%, using 57% of earnings to fund dividends.
CVS offers a slightly better yield of 2.9%, and uses only 36% of earnings. CVS increased dividends from 2003 -2017; but then froze it in 2018.
Walgreens and CVS have each delivered year-to-date losses in the stock market this year, and have brick-and-mortar problems they may not be able to solve.
CVS generates strong cash flow and is focused on debt reduction. Walgreens looks a little bit better with respect to short term earnings potential.
Both companies have received solid readings from Wall Street and there have been no “sell” readings on their stocks.
Are You a Bull or Bear ?
Date: August 16, 2019 Name: Walgreens Share price was $50.48
If you’re a Bullish Mom and think Walgreens will go up, try the Octobe 18th Expiration Date – CALL $50.00 Bid; and $47.50 Ask strike prices. Premium is $1.63 debit to pay = Long Call Vertical Spread on http://www.TDAmeritrade.com
On the other hand, Mom, if you think Walgreens is bearish and will go down, try the Expiration Date October 18th – PUT $50.00 Ask; and $47.50 Bid strike prices. Premium is $1.02 debit to pay = Long Put Vertical Spread on http://www.TastyWorks.com
Date: August 16,2019 Name CVS Share price was $60.20
If you’re a Bullish Mom and think CVS will go up, try the October 18th Expiration Date – CALL $60.00 Bid; and $57.50 Ask strike prices. Premium is $0.97 debit to pay = Long Call Vertical Spread on http://www.TDAmeritrade.
On the other hand, Mom, if you think CVS is bearish and will go down, try the Expiration Date October 18th – PUT $ 60.00 Ask; and $ 57.50 Bid strike prices. Premium is $0.97 debit to pay = Long Put Vertical Spread on http://www.TastyWorks.com
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