I wanted to send in a quick note to readers about an interesting recent development. According to reports I have read, Amazon (NASDAQ:AMZN) has shelved plans to sells drugs to hospitals. Fears of Amazon have plagued the share prices for companies such as Cardinal Health (CAH), CVS Health (CVS) and Walgreen's (WBA).
Selling pharmaceuticals is a different business from selling books online. You cannot simply ship them using FedEx (NYSE:FDX) or UPS (NYSE:UPS). Amazon would need to build a more sophisticated logistics network that can handle temperature-sensitive pharmaceutical products. Before that however, it needs to build the trust of big hospitals first.
In addition, Amazon is not able to sell products, such as pacemakers, which are directly implanted in the human body. As a result, it does not have the ability to become a vendor that offers complete solutions to hospitals.
Amazon had found it difficult to sell and distribute pharmaceutical products. Amazon has not been able to convince big hospitals to change their traditional purchasing process, which typically involves a number of middlemen and loyal relationships.
The health-care supply chain is well-entrenched and will be hard to break into. The hospital and health-care systems have entangling alliances with their existing purchasing and supply chain partners.
I believe that the following companies are attractively valued today, and should be on your list for further research:
Walgreens Boots Alliance, Inc. (WBA) operates as a pharmacy-led health and wellbeing company. It operates through three segments: Retail Pharmacy USA, Retail Pharmacy International, and Pharmaceutical Wholesale. The company is a dividend aristocrat, which has managed to raise dividends to shareholders for 42 years in a row. The ten year dividend growth rate is 16.20%/year. Walgreens Boots Alliance has managed to grow earnings per share from $2.03 in 2007 to $3.78 in 2017. Forward estimates are for $5.96/share in 2018. Currently, the stock is attractively valued at 17.60 times earnings and yields 2.40%. Check my analysis of Walgreens for more information about the company.
CVS Health Corporation (CVS) provides integrated pharmacy health care services. It operates through Pharmacy Services and Retail/LTC segments. The company is a dividend achiever, which has managed to boost its dividend for 14 years in a row. The ten year dividend growth rate is 25.20%/year. While the company has announced its intent to freeze the dividend until its acquisition of Aetna (AET) is completed, I believe it will be able to resume dividend growth in the future. CVS Health has managed to grow earnings per share from $1.90 in 2007 to $6.45 in 2017. Forward estimates are for $6.40/share in 2018. Currently, the stock is attractively valued at 10.20 times earnings and yields 3%. Check my analysis of CVS Health for more information about the company.
Cardinal Health, Inc. (CAH) operates as an integrated healthcare services and products company worldwide. This dividend achiever has a 21 year history of annual dividend increases. Over the past decade, this dividend achiever has managed to hike those distributions at an annual rate of 19.70%/year. The company managed to boost its earnings per share from $2.33 in 2007 to $4.03 in 2017, supporting its strong dividend growth. Analysts expect that Cardinal Health could earn $5.43/share in 2018. The stock is attractively valued at 16 times earnings and yields 2.90%.
Of the three companies, I find CVS Health to be the best value, due to its low P/E ratio. Despite the fact that CVS Health has indicated that the dividend will not be increased, I believe that the valuation more than compensates the patient holder today. In addition, a company does not need to raise dividends every year in order to deliver a solid dividend growth from decade to decade.
Disclosure: I am/we are long CVS, WBA, CAH. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.