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Walgreen Company (WAG), CVS Caremark (CVS): Who Is Delivering? The Answer May Surprise You.

The retail pharmacy sector had an excellent first quarter across the board. These outfits offer investors a safe harbor in the choppy water of the overdue economic recovery. This article will focus on the three key players: Walgreen Company (NYSE:WAG)Express Scripts Holding Company (NASDAQ:ESRX) and my personal choice, CVS Caremark Corporation (NYSE:CVS). All three reported strong sales, and the share price of each saw solid gains in the first quarter.

Walgreen Remains the Leader

Walgreen Company (WAG): Will a New Loyalty Program Help This Drugstore?Walgreen Company (NYSE:WAG) runs the largest network of retail drugstores in the U.S. The outfit offers an array of consumer goods and services, pharmacy, and health and wellness services. Walgreen has a market cap of $45.5 billion and a P/E ratio of 21.4 – above the S&P 500 P/E ratio of 17.7. Shares are up by more than 29% so far in 2013.

The drug chain is strong in a number of areas including climbing net income, steady cash flows, and a sound financial position overall. Moreover, Walgreen Company (NYSE:WAG) has a history of solid share price performance and continued growth in earnings per share.

The company recently reported results for the first quarter and sales are up about 3.8% to just under $6 billion. Walgreens’ total pharmacy sales accounted for much this rise – more than 64% of total sales. But total front-end sales declined 2.9% compared with the first quarter of 2012.

In short, Walgreen Company (NYSE:WAG)’s prescription drug sales have climbed for two straight months and are likely to continue. The share price is now hovering at $49+, far higher than the 52 week low of $28.50. At this price, it could be time to take some money off the table; but growing Rx sales numbers going forward make Walgreen a good long-term buy.

Express Scripts Delivers

Express Scripts Holding Company (NASDAQ:ESRX) is the leading pharmacy benefit manager (PBM) is the sector. In this capacity the company operates as a third-party administer of employee drug plans. In fact, almost 100 million members receive their prescriptions from an Express Script’s managed plan.

This makes the prescription provider the largest PBM – way ahead of CVS Caremark Corporation (NYSE:CVS). Express Scripts also has a large share of the Medicare prescription market. The outfit’s business model aims to cut out of pocket cost of Rx drugs for its members – this ultimately creates solid margins.

The share price is currently hovering at the $61 mark, and this is still lower than the 52 week high of about $66. Express Scripts has a market cap of $48.7 billion and a P/E ratio of 35.3, above the S&P 500 P/E ratio of 17.7. But with shares up about 10% in 2013, this presents a buying opportunity as many analysts have noted.

In sum, as with the other PBM key players, Express Scripts Holding Company (NASDAQ:ESRX) is strong because of its solid revenue growth, continued gains in net income along with good cash flow – all of which contribute to ongoing growth in earnings per share. Express Scripts solid financial position makes the company a good buy for Rx investors.

CVS Caremark Earnings Pumped by Generic Drugs

CVS Caremark Corporation (NYSE:CVS) also recently announced good news for the first quarter: quarterly earnings rose 23% despite flat revenue. The earnings growth is due mostly to strong demand for new generic drugs. The big news is that CVS Caremark Corporation (NYSE:CVS) has reported solid earnings – in fact, better than expected – for five straight quarters. And the growth in earnings stems mostly from climbing Rx volumes.

In sum, in the first quarter, CVS reported a profit of $956 million, or 77 cents a share, up from $776 million, or 59 cents a share, a year earlier. So the company continues to be a good bet for the rest of 2013. Since the beginning of the year the share price has climbed from $51 and change and now hovers at $58.50. As with its competitor Walgreen Company (NYSE:WAG), this might be a good time to take some profits.

However, the P/E ratio of 13.2 is still lower than its ten year average o 22.4. The current ratio is also less than the current S&P ratio of 17.7. In the final analysis, CVS Caremark Corporation (NYSE:CVS) stores account for about 50% of sales, and the outfit fills more than one billion prescriptions a year – 20% of total U.S. retail pharmacy sales. The share price still has room to grow for the rest of 2013.

The Bottom Line

The retail pharmacy business, along with the broader health care sector, is a good place for investors to be in what remains a shaky economic recovery. In other words, retail pharmacies have the Rx: profits.

The article Retail Pharmacies Have the Profit Remedy originally appeared on and is written by Kyle Colona.

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