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Walgreen Company (WAG), CVS Caremark Corporation (CVS) – Drugstore Chains: Time for a Change?

In addition to the Express Scripts customers, which were mostly responsible for CVS Caremark Corporation (NYSE:CVS)’s 24% spike in PBM (pharmacy benefit management) sales, CVS is expecting another $400 million in new PBM clients as a result of the new U.S. health care laws. The company is also planning to open a bunch of new stores, which will increase their overall square footage by about 2%, very significant for a company as large as CVS.

On top of all of that, CVS just looks like the cheaper option right now.CVS trades at just 18.2 times TTM earnings, as opposed to 21.4 for Walgreen. CVS is also expected to grow its earnings quicker as a result of benefiting more from the increased PBM volume that is projected to occur over the next few years. The consensus is for CVS Caremark Corporation (NYSE:CVS) to grow its earnings by an average of 13.3% annually over the next three fiscal years versus 11.3% for Walgreen, which is also expected to significantly benefit from the new health care laws, just to a slightly lesser extent.

Conclusion

Cheaper valuation, better growth, and a great share repurchase plan of $4 billion make CVS look like the better choice now. Walgreen Company (NYSE:WAG)’s shareholders, who have seen their shares rise very nicely, may want to look at this as a good opportunity to take at least some of their gains and maybe shift those into CVS Caremark Corporation (NYSE:CVS), which is clearly the better value.

The article Drugstore Chains: Time for a Change? originally appeared on Fool.com and is written by Matthew Frankel.

Matthew Frankel has no position in any stocks mentioned. The Motley Fool recommends Express Scripts. The Motley Fool owns shares of Express Scripts. Matthew is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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