Which pharmaceutical retailer is a better buy for 2022?

Walgreens Boots Alliance, Inc. (WBA) in Deerfield, Illinois, is a pharmacy-led health and beauty retail business. It operates through two segments: the United States and internationally. In comparison, Rite Aid Corporation (RAD) in Camp Hill, Pennsylvania, operates a chain of retail pharmacies. It operates through two segments: retail pharmacy; and pharmacy services.

Pharmaceutical retailers are expected to experience strong demand with the resurgence of COVID-19 cases around the world. An aging population and a growing community of patients with various chronic diseases are key growth engines for the pharmaceutical industry. In addition, high government investments and continued innovations in the treatment of critical conditions are expected to drive the industry’s growth. In addition, the pharmaceutical sector generally shows stable performance, given the almost inelastic demand for its products. According to a report by Research and Markets, the global pharmaceutical market is expected to grow at a 8% CAGR until 2025. Therefore, WBA and RAD are expected to benefit.

WBA stock has gained 8.6% going over the past month, while RAD has returned 4%. Additionally, WBA’s 11.8% gains over the past three months compare to negative returns from RAD. Additionally, WBA is the clear winner with gains of 21.9% over RAD’s negative performance returns last year.

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But which of these two titles is the best buy now? Let’s find out.

Latest developments

On January 6, 2022, Rosalind Brewer, CEO of WBA, said: “The good start to the fiscal year strengthens our confidence in the future and as a result we are raising our guidance for the full year and increasing investments in our employees. For the future, we are well positioned for sustainable and long-term value creation. “

On December 21, 2021, Heyward Donigan, President and CEO of RAD, said, “We are encouraged by our recent momentum and expect a significant increase in our adjusted EBITDA results in the fourth quarter compared to last year. . As a result, we are raising our adjusted EBITDA forecast for fiscal year 2022. ”

Recent financial results

WBA’s sales increased 7.8% year-on-year to $ 33.90 billion for its fiscal first quarter, ended November 30, 2021. The company’s adjusted operating profit increased 48.6% year-on-year to $ 1.78 billion, while its adjusted net income increased to $ 1.59 billion, representing a 38.3% year-over-year increase. In addition, its adjusted EPS was $ 1.68, up 37.7% year-on-year.

RAD revenue increased 1.8% year-on-year to $ 6.23 billion for its fiscal third quarter, ended November 27, 2021. The company’s adjusted EBITDA increased 12.7% year-on-year annual to reach $ 154.80 million. However, its adjusted net income stood at $ 8.20 million, which was down 62% year-over-year. Additionally, the company’s adjusted EPS was $ 0.15, down 62.5% year-over-year.

Past and expected financial performance

WBA’s revenue and total assets have grown at CAGRs of 0.3% and 6.1%, respectively, over the past three years. Analysts expect WBA’s revenue to grow 0.1% for the quarter ending February 28, 2022 and 3.6% in fiscal 2023. The company’s EPS is expected to increase 11%. , 1% for the quarter ending February 28, 2022 and 3.2% in fiscal 2023. In addition, its EPS is expected to grow 2.9% per year over the next five years.

In comparison, RAD’s total revenues and assets have grown at IGAs of 4.1% and 5.5%, respectively, over the past three years. The company’s revenue is expected to increase 2.7% for the quarter ending February 28, 2022 but decline 1.4% in fiscal 2023. Its EPS is expected to increase 28.2% for the year. quarter ending February 28, 2022 but decline 187.5% in fiscal 2023 In addition, RAD’s EPS is expected to decline 3.7% per year over the next five years.

Profitability

WBA’s last 12-month revenue is 5.43 times RAD’s. WBA is also more profitable, with gross margins and EBITDA of 21.18% and 4.04%, respectively, compared to 20.49% and 1.64% for RAD.

In addition, the respective ROA and ROTC of 2.72% and 3.80% of WBA are greater than 0.66% and 0.90% of RAD.

Evaluation

In terms of advance EV / EBITDA, RAD is currently trading at 13.87x, which is 12.7% higher than WBA’s 12.31x. However, WBA’s 0.62x forward EV / S ratio is 113.8% higher than RAD’s 0.29x.

POWR odds

WBA has an overall rating of B, which is equivalent to a purchase in our property POWR odds system. By comparison, RAD has an overall C rating, which translates to Neutral. POWR scores are calculated by considering 118 separate factors, each factor being weighted to an optimal degree.

WBA has a B rating for growth and sentiment, which is in line with analysts’ expectations that its EPS and revenue will increase in the coming years. In contrast, RAD has a C rating for growth and a D rating for sentiment, which are in line with analysts’ expectations that its EPS and revenue will decline next year.

Additionally, WBA has a B rating for value, consistent with its forward EV / EBITDA 12.31x, which is below the industry average of 12.54x. However, RAD has a C rating for the value, which is in sync with its EV / EBITDA before 13.87x. Which is 10.6% higher than the industry average 12.54x.

Out of the four shares rated A Medical – Pharmacies industry, WBA is ranked second. In comparison, RAD is ranked last.

Beyond what I stated above, we also rated the stocks for dynamics, quality, and stability. Click here to view all WBA assessments. Also get all RAD ratings here.

The winner

The pharmaceutical industry is expected to grow thanks to technological advances in healthcare infrastructure and drug development processes. And while WBA and RAD are expected to win, we believe it is better to bet on WBA now because of its higher profitability and better prospects for growth.

Our research shows that the chances of success increase when investing in stocks with an overall strong buy or buy rating. View all other top rated stocks from the Medical – Pharmacies sector here.

Click here to view our Health Sector Report


WBA stock was trading at $ 54.02 per share on Friday afternoon, up $ 1.58 (+ 3.01%). Year-to-date, WBA has gained 3.57%, compared to a -1.57% increase in the benchmark S&P 500 over the same period.

About the Author: Nimesh Jaiswal

Nimesh Jaiswal’s a passionate interest in the analysis and interpretation of financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach he takes while advising investors in his articles. Following…

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