CVS Health vs. Rite Aid: Which Stock is a Better Buy? U.S. Pharmacy stocks have outperformed in recent months as many expect consumer spending to be quite strong in 2021 and 2022.
By Patrick Ryan
This story originally appeared on StockNews
CVS Health (CVS - Get Rating) and Rite Aid (RAD - Get Rating) have been and likely will continue to be two of the market's top pharmacy stocks. As most shoppers know, these pharmacy and drug store businesses are fairly similar. However, those who closely analyze the nuances of these two companies are likely to favor one over the other.
Instead of investing hour after hour studying the nuanced strengths and weaknesses of CVS and RAD, let us do the work on your behalf. We have studied both of these pharmacy stocks in-depth to provide readers with a good idea of which of the two is most deserving of a place in their portfolio.
Without further ado, let's take a deep dive into CVS and RAD to determine which is the better buy.
CVS
CVS is more than just a corner store. This corporation is an innovator in the pharmacy space. CVS provides a litany of pharmaceutical products to the masses. Furthermore, it must be noted CVS finalized its consolidation of the insurance powerhouse Aetna in '18, setting the stage for considerable revenue growth moving forward.
Check out the CVS POWR Ratings and you will find the stock has an A grade in the Value component along with a B grade in the Stability component. If you are curious as to how CVS fares in terms of the Quality, Momentum, Growth, and Sentiment components of the POWR Ratings, you can find out by clicking here.
Of the five publicly traded companies in the Medical – Drug Stores space, CVS is ranked first. You can learn more about this industry by clicking here.
The top analysts paint a rosy picture for CVS moving forward, setting an average price target of $85.72, reflecting the potential for the stock to increase by more than 25%. All in all, slightly more than two dozen analysts have reviewed the stock. The highest price target is $102. The lowest price target is $72. CVS currently trades around $69 so it is clearly priced below the analysts' price targets.
CVS revenue was up nearly 5% in '20, hitting $269 billion. The company's net income soared nearly 10%, coming in a little over $7 billion. It is clear CVS is on the upswing and its business model is working.
Rite Aid
If you are like most people, you drop on by your local Rite Aid at least once every couple of weeks. RAD provides quick shopping, albeit at elevated prices. However, RAD's primary draw is it is pharmaceutical products. RAD is the country's third-largest brick-and-mortar drugstore. The company has more than 2,400 stores spanning nearly 20 states.
RAD provides pharmacy management services to more than three million members. RAD's retail pharmacy segment comprises nearly three-quarters of its aggregate annual revenue.
RAD has C grades in the Quality, Value, Stability, and Growth components of the POWR Ratings. If you are curious as to what RAD's grades are in the Momentum and Sentiment components, you can find out by clicking here.
It is concerning that RAD is ranked dead last of five stocks in the Medical – Drug Stores space. However, this industry as a whole has a B POWR Rating grade. If you would like to find out more about the companies that make up the Medical – Drug Stores category, you can do so by clicking here.
Check out the analysts' take on RAD and you will be a bit disappointed. The analysts' average price target for the stock is $17, indicating RAD has the potential to slide by nearly 20%. However, the analysts' high target is $21, a price level that is about $1.50 more than RAD's current cost per share. It is concerning that RAD has a forward P/E ratio over 43, a clear indicator that the stock might be slightly overvalued.
The Better Buy
It is difficult to predict which of these two stocks is more likely to pop in the future. The tiebreaker is determined by the POWR Ratings. CVS has an overall POWR Rating grade of B, indicating it is a Buy. Add in the fact that CVS has a lower forward P/E ratio and it can be stated in full confidence that it is a better buy than RAD.
