In early February, CVS announced that it had purchased Drogaria Onofre, Brazil’s eighth-largest drugstore chain.
Chief Executive of CVS, Larry Merlo stated:
“We view Brazil as an attractive market given that healthcare and pharmacy are expected to grow [in the] double digits for the next decade.”
The purchase was the first attempt by CVS Caremark Corporation (NYSE:CVS) to venture outside of the U.S.
Valuations…
Now lets take a look at both CVS and Walgreen Company (NYSE:WAG)’s valuations:
| P/E | Forward P/E | PEG ratio | Dividend (yield) | |
|---|---|---|---|---|
| CVS | 19.4 | 13.3 | 1.1 | 0.9 (1.6%) |
| WAG | 21.8 | 13.3 | 1.1 | 1.1 (2.2%) |
Data obtained from Yahoo! Finance, May 1.
Both companies look similarly valued in the near term and beyond. What separates one from the other, however, seems to be the dividend. Not only does Walgreen yield more than CVS, it also has a better and more established track record of doing so:
Walgreen Company (NYSE:WAG) is a dividend dynamo, and looking at the increases as a percentage shows why:
The bottom line
Walgreen currently seems to be a much better investment than CVS Caremark Corporation (NYSE:CVS) when considering future prospects. Its huge deal with AmerisourceBergen gives it economies of scale that beat CVS.
While Walgreen Company (NYSE:WAG) is already the largest drugstore in the U.S., its strategic deal with Alliance Boots gives it a huge head start internationally over CVS and cements its place as the first-and-largest global drugstore in the world–now with a heavy presence in Europe and a growing foothold in emerging markets.
When looking at valuations, both companies look expensive if considering trailing P/E ratios, and look cheap going forward when keeping annual estimated earnings in mind. Walgreen distinguishes itself from CVS Caremark Corporation (NYSE:CVS), however, with its explosive dividend growth and track record over the years. If I’m going to pay the same price relative to earnings, I want the better option between the two.
Walgreen is set up nicely to be the dominant global drugstore, and it will be hard to knock it down. If CVS retains 60% of Walgreen’s former customers from the Express Scripts Holding Company (NASDAQ:ESRX) fallout, Walgreen Company (NYSE:WAG) might not notice much 10 years down the road. CVS appears to be attempting to play checkers in a chess game, while Walgreen is already setting up for the check-mate.
CVS Caremark Corporation (NYSE:CVS) might still make a good play to capitalize on U.S. demographics and Obamacare, but Walgreen (as of now at least) is king of the drugstore castle. It will be hard for another company to dethrone an already well-established, global leader– and this is why I believe Walgreen will most likely continue to outperform.
The article Drugstore Wars: Walgreen or CVS Caremark? originally appeared on Fool.com and is written by Joseph Harry.
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