My Bullish Thesis

Prediction

I believe that CVS will reach $120 per share by the end of 2021.

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The Bull Thesis

COVID-19 Vaccinations - CVS will play a large part in administering the COVID-19 vaccinations that many people will be getting this year. CVS will have a lot of foot traffic this year and with increased foot traffic comes increased profits. When people go in to get their vaccinations people will likely spend a dollar or two before they leave. Needless to say, CVS is going to have a great year.

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Valuation - April 1, 2016, CVS is over $100. Four years in the future CVS sits at about $70.00. That is a drop of about 30%.

 

More recently, over 2020, CVS has declined about 9% as fears over COVID-19 have led many people to get their prescriptions online and Amazon began providing prescriptions.

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However, increased foot traffic from people needing to get their COVID-19 shot from a physical location should mean that business should be booming. At least throughout 2021 and possibly even into 2022.

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Dividend - Here, at around the $70 mark (where I recommend a buy) CVS yields about 3% (or about $2 per year per share).

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Needs Based Business - This is a pharmacy and a pretty nifty convenience store. People are going to need to get their COVID-19 vaccination. People already needed their medicine and why not do a bit of grocery shopping while you are there? 

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Safe - The increased foot traffic, the dividend, and the fact that this is a needs based business make this stock one of the safest stocks in the market. At a time when many other companies are being forced to cut their dividend, CVS's business is profiting and is well positioned to keep its dividend if not increase it. The chances that this stock loses value in 2021 are very low. The chances that it both increases in value and pays at least a $2 dividend per share by the end of the month are very high.

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If you want to invest but are hesitant to do so out of fear of losing money. This is your stock!​

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CVS vs. Walgreens

Walgreens - Walgreens is CVS's main competitor and both of these stocks are going to have a wonderful year because both are offering COVID-19 shots but I am recommending CVS over Walgreens for the following reasons:

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P/E Ratio (TTM) - Historical earnings performance is not everything but it can tell you a little bit about the business and who is the leader and the company that will be helped most. Today, as I am recommending CVS over Walgreens CVS has a P/E (TTM) of 11.23 compared with Walgreens P/E (TTM) of 76.34. That means that when you are buying CVS you are paying less per share for each cent that the company earns than you are if you are buying WBA.

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EPS - Although a correlative of the P/E ratio it is still important to note that CVS earns $6.07 per outstanding share compared to WBA that earns $.52 per outstanding share.

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Market Capacity - CVS is the larger company with a market cap of about $90 B compared to WBA with a market cap of about $35 B.

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Based on these numbers it seems clear to me that CVS is the better performing company of the two. Let's see why this might be.

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CVS Fills More Prescriptions Therefore I Think it Will Provide More Vaccinations 

During its third quarter, CVS said it filled more than 352 million prescriptions. Walgreens filled 283 million prescriptions, which included immunizations, in U.S. locations during its fiscal fourth quarter. I believe that people will go to get their vaccine shot at the same place where they go to fill their prescription. Therefore, I think that CVS will do more business in 2021.

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Aetna Acquisition - (For now, this is not as important. It shouldn't harm the company. I will dive into this when I have more time)

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The Bear Thesis on CVS vs. Walgreens

Beat Down Dog - Walgreens is a little further beaten down which could mean that it has more potential upside but it could be riskier to hold long term. Also, the fact that it is cheaper per share (about $40 compared to $70) allows you to hold more shares which could mean more share price appreciation.

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Dividend Yield  - Walgreens has the higher dividend yield. Walgreens is yielding a little over 4% compared to CVS's 3%. Since WBA has a higher dividend yield it starts off returning more money than CVS. CVS will have to make up for this 1% in share price appreciation to make CVS the wiser investment.