The Covid-19 pandemic and increased need for medical treatments have led to robust demand for the drugstore sector products. Moreover, the growing geriatric population, rising incidence of chronic diseases, and increased healthcare expenditure are expected to spur growth.
According to the WHO, chronic diseases affect nearly 40% of the total population in America, resulting in a large pool of patients requiring therapies at home or care centers. With the US accounting for 45% of the total global pharmaceutical market and 22% of global production; the US pharmacy market is projected to grow at a 6.3% CAGR between 2021 to 2028.
While we believe investors should buy drugstore stock CVS Health Corporation (CVS), fundamentally weak stocks Rite Aid Corporation (RAD) and TRxADE HEALTH, Inc. (MEDS) could be best avoided amid the persistent stock market volatility.
Stock to Buy:
CVS Health Corporation (CVS)
CVS, a health solutions company, operates through four segments Health Care Benefits; Pharmacy Services; Retail/LTC; and Corporate/Other. Its offerings include health & wellness services, health plans, pharmacy services, and prescription drug coverage.
On September 5, CVS announced its entry into a definitive agreement to acquire Signify Health (SGFY) for approximately $8 billion. According to CVS President and CEO Karen S. Lynch, “Signify Health will play a critical role in advancing our health care services strategy and gives us a platform to accelerate our growth in value-based care.”
For the fiscal 2022 second quarter ended June 30, 2022, CVS’ total revenue increased 11% year-over-year to $80.64 billion. In the same period, its operating income grew 5.6% year-over-year to $4.57 billion, while its net income increased 6.1% year-over-year to $2.96 billion.
Analysts expect CVS’ EPS and revenue for the third quarter ending September 30 to increase 1.4% and 4.1% year-over-year to $2 and $76.78 billion, respectively. It has surpassed the consensus EPS estimates in each of the trailing four quarters.
The stock has gained 18.6% over the past year and 5.8% over the past three years.
CVS’ POWR Ratings reflect solid prospects. It has an overall rating of A, translating to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
It also has an A grade for Stability and a B for Growth and Sentiment. It is ranked #1 of four stocks in the B-rated Medical – Drug Stores industry.
Click here to access additional ratings for Value, Momentum, and Quality for CVS.
Stocks to Avoid:
Rite Aid Corporation (RAD)
RAD operates a chain of retail drugstores in the United States through two segments: Retail Pharmacy; and Pharmacy Services.
The Retail Pharmacy segment provides prescription drugs as well as healthcare coaching and disease management services; while the Pharmacy Services segment provides an integrated suite of pharmacy benefit management (PBM) offerings, including technology solutions, mail delivery services, specialty pharmacy, and others.
RAD’s revenues decreased 3.5% year-over-year to $5.90 billion in the fiscal second quarter ended August 27, 2022. The company’s adjusted EBITDA declined 26% year-over-year to $78.55 million. Moreover, its net loss and net loss per share came in at $441.48 million and $8.11, widening 289.5% and 286.2%, respectively, from the prior-year period.
Street expects RAD’s revenue to decline 3.4% from the prior-year period to $23.73 billion for the fiscal year ending February 2023. It missed Street EPS estimates in three of the trailing four quarters.
The stock has plunged 61.7% over the past year and 64.5% year-to-date.
It’s no surprise that RAD has an overall D rating, which translates to Sell in our POWR Rating system.
RAD has an F grade for Sentiment. It is ranked #4 in the same industry.
In addition to the POWR Rating grades we’ve stated above, one can see RAD ratings for Growth, Value, Stability, Momentum, and Quality here.
TRxADE HEALTH, Inc. (MEDS)
MEDS, a health services IT company, digitizes the retail pharmacy experience by optimizing drug procurement, prescription journey, and patient engagement. MEDS operates the TRxADE drug procurement marketplace, fostering price transparency and offering patient-centric telehealth services.
On August 24, MEDS announced the termination of its proposed underwritten public offering announced on August 23, 2022. The company’s management stated that the market conditions were non-conducive for an offering and were done in the best interests of the company’s stockholders.
For the fiscal quarter ended June 30, MEDS’ operating loss came in at $1.10 million. Net loss and net loss per share stood at $1.08 million and $0.13, respectively. Also, the net cash used in operating activities increased 55.5% from the prior year to $2.18 million.
The consensus EPS estimate of negative $0.11 for the quarter ending December 2022 indicates a decline of 16.7% year-over-year.
MEDS’ shared has slumped 76% over the past year and 51.7% year-to-date.
MEDS’ POWR Ratings reflect this bleak outlook. The stock has an overall rating of D, equating to a Sell in our proprietary rating system.
MEDS also has a Value and Stability grade of D. In the same industry, it is ranked last.
To see the additional POWR Ratings for MEDS for Growth, Momentum, Sentiment, and Quality, click here.
CVS shares were trading at $88.19 per share on Friday afternoon, down $10.39 (-10.54%). Year-to-date, CVS has declined -13.11%, versus a -22.59% rise in the benchmark S&P 500 index during the same period.
About the Author: Komal Bhattar
Komal's passion for the stock market and financial analysis led her to pursue investment research as a career. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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