Walgreen Vs. CVS: Which Is The Better Buy?

Includes: CVS, WBA
by: Karin Hernandez

One of the big battles this year has been the Walgreens-Express Scripts war over prescription reimbursement rates. The feud has finally been resolved, with Walgreen Co. (WAG) beginning to fill Express Scripts (NASDAQ:ESRX) prescriptions beginning in September. So today, Walgreens versus archrival CVS Caremark (NYSE:CVS): which is the better buy?

In my analysis, I tend to rely heavily on analyst opinion and estimates. I figure they have been studying the stock for a while and probably have a better handle on the numbers than I do. I do look at current news as well, but I like to lean more on the numbers to provide an objective recommendation.

CVS is currently trading at about $45, down 8% up from its 52-week high of $48.69 reached last week. It has a P/E of 16.9 and pays a 1.5% dividend. The current analyst rating is a 1.9 (1.0 = Strong Buy, 5.0 = Sell) with a mean target price of $50.95. There are 6 Strong Buy recommendations, 13 Buys, and 4 Holds.

Year-end 2012 consensus earnings estimate is $3.33, 19% higher than actual 2011 earnings of $2.80. The estimate for year-end 2013 is $3.73, 12% higher than 2012.

The stock is up 11% year-to-date and up 22% from this time last year. The current estimated annual growth rate for the next five years is 11.94% compared to an industry average of 13.73% and a sector average of 14.87%.

Walgreens is trading at approximately $34 per share, in the middle of its 52-week range. It has a P/E of 11.85 and pays a 3.2% dividend. Currently analysts rate it a 2.7 (4 Strong Buys, 6 Buys, 9 Holds, 3 Underperforms and 1 Sell) with a mean target price of $36.50.

Walgreens' fiscal-year (August 2012) consensus earnings estimate is $2.61, three cents lower than actual 2011 earnings. Its estimate for fiscal-year 2013 is $3.00, 14% higher than 2012.

The stock is up 5% since the beginning of 2012 and down 11% from a year ago. Current 5-year annual growth is estimated at 10.54% vs the S&P at 10.49%.

The fact that the Walgreens-Express Scripts war has ended may be a case of too little, too late. Walgreens customers have already been lost. They have already had to switch pharmacies. Walgreens will have to lure them back - not an easy process at all. In fact, after the announcement was made, CVS actually raised their guidance for next quarter, reflecting their confidence that their increase in customers will continue.

Eventually, however, I go back to the numbers. With CVS's current and year-end 2013 earnings estimate, I see a stock price of $63, or upside of 40%. Walgreens' P/E and earnings estimate leads to a stock price of $36, for 5% upside. Buy CVS.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.