Retail drugstores recently reported March sales. Of the three largest drug stores, two saw sales growth while one experienced a decline. While this is only one month’s worth of performance, what does this signal for investors in big retail drugstore stocks this year?
Walgreen
Walgreen Company (NYSE:WAG) had sales of approximately $6.2 billion, which was a 2.3% increase from the same time last year. The report has mixed news, though. Same-store sales declined by 1.3% in the month, but the amount of each average purchase rose by 5.5%. There were fewer customers in the door but they were spending more money. Walgreen Company (NYSE:WAG) also filled 4% more prescriptions than the same time last year.
The stock has gained 49% in the last year as investors are seeing and hoping for more good things to come from Walgreen Company (NYSE:WAG). The company fixed its partnership with Express Scripts last summer, allowing Express Scripts customers to use their benefits and discount cards at Walgreen Company (NYSE:WAG) locations. This relationship was repaired last July, which coincided with the rise in price for the stock.
The last two quarters saw a climb in earnings per share and revenue. The Express Script agreement brought more customers in the store. This year’s total earnings should be higher than last year, coming in at around $3.30 per share. March sales were a small picture of the rest of the year. There will be steady gains to come for the remainder of 2013.
The company also announced its dividend payment of about $0.27 per share to be paid on June 12. This is on track with the company’s 2.3% dividend yield. This is a great company to hold, and there should be steady gains in the stock price this year.
CVS Caremark
CVS Caremark Corporation (NYSE:CVS) saw excellent March sales growth. Total sales rose 9.5% to approximately $2.7 billion. Same-store sales increased by 7.8% for the month when compared to the same time last year. Pharmacy same-store sales grew by 9.1% and made up roughly 71% of total sales for the month of March.
One key competitive advantage that CVS Caremark Corporation (NYSE:CVS) has is its MinuteClinic. Customers can receive some basic clinic-services inside CVS locations. Also, its pharmacy benefits-management program offers services around prescription filling by mail and the management of benefits for customers. These additional revenue streams help the company diversify and allow it to benefit from additional services patients and customers need.
The stock is up 30% in the last 12 months. Earnings have been growing for the last few quarters as the company gathers more market share and increases its customer base. In 2012, the company had a 22.8% market share for prescriptions filled. This made it the largest in the industry.
CVS Caremark Corporation (NYSE:CVS) also offers a dividend, but it’s smaller than Walgreen’s distribution. The yield is 1.9% with an annual dividend of $0.90 per share. This is another great company to hold for now.
Rite Aid
Rite Aid Corporation (NYSE:RAD) is the smallest of these three and has had a lot of issues over the last few years. Store sales fell by 2% in March, but this is an improvement from February’s 3.5% decline. Same-store pharmacy sales fell by 4.5% even after Rite Aid Corporation (NYSE:RAD) began offering lower-priced generic drugs. Front-end, or non-pharmacy sales grew by 3.8%. This was largely due to the timing of Easter, which caused holiday-gift sales to shift from April to March.
The stock price has gained 8% over the last year. Much of this gain has happened in recent days due to the company’s posting of positive earnings for two consecutive quarters. For the quarter that just ended, the company posted earnings of $0.13 per share. One year ago, the company lost $0.18 per share. This is great news for Rite Aid Corporation (NYSE:RAD) and investors alike.
Last year the company had market share of 6.4%. This company is starting to show an ability to return to profitability. If this trend continues, it may be worth a buy in the future. If you are holding it right now, enjoy the gains from the recent earnings results that beat Wall Street estimates by $0.15.
Final thoughts
March sales were up for two drug retailers and down for one. Walgreen and CVS are two companies worth holding and perhaps buying. Sales at each of these stores are expected to rise this year. So March sales do point toward the rest of the year. Rite Aid had lower sales but posted great profits for the quarter. One month doesn’t always signal the rest of the year.
Of these three companies, CVS Caremark Corporation (NYSE:CVS) is the best pick. It has more diversified revenue with multiple segments. It hasn’t had partnership issues like Walgreen and Express Scripts, nor has it had major profitability issues like Rite Aid. CVS is the leader of the pack. Stick with this one and watch the gains come in.
Austin Higgins has no position in any stocks mentioned. He is the Principal Consultant for Avant Venture Group and focuses on building businesses through innovation, growth and investment. Read his company’s blog at BuildInvestGrow.com and follow him on Twitter @Austin_Higgins.
The Motley Fool has no position in any of the stocks mentioned.
