Will CVS Health and Walgreens Survive?

Is it the single payer narrative being pushed by Democratic Presidential frontrunners? Is it the Amazon threat via its acquisitions of PillPack and Whole Foods that may displace traditional pharmacies? Is it the drug pricing pressures that are eroding margins and limiting margin expansion over time? Is it the secular decline in the physical footprint storefront retail space that’s hindering foot traffic and off-the-shelf purchases? Regardless of whether or not it’s singularly attributable to one of these factors or the culmination of all the aforementioned factors, CVS Health (CVS) and Walgreens Boots Alliance (WBA) are being pressured in many different directions. CVS and Walgreens have plummeted by 53% ($113 to $53) and 46% ($97 to $52), respectively from their multi-year highs. Over $110 billion in combined market capitalization has been erased from these two companies. With threats coming from all angles, will these two pharmaceutical supply chain heavyweights be able to not only survive but compete and revive their dominance in the marketplace?

Backdrop and Market Dynamics

The pharmaceutical supply chain cohort, specifically CVS and Walgreens, are simply unable to obtain firm footing in the backdrop of consolidation within the sector, negative legislative undertones, drug pricing pressures, rising insurance costs and a market that has lost patience with these stocks. All of these factors culminate into sub-par growth with a level of uncertainty as this sector continues to face headwinds from multiple directions. Many of the stocks that comprised this cohort presented compelling valuations in a very frothy market. This allure has been a value trap as these stocks continue to be a falling knife. It’s no secret that these companies have been faced with several headwinds that have negatively impacted the growth and the changing marketplace conditions have plagued these stocks. Continue reading "Will CVS Health and Walgreens Survive?"