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  • Walgreens vs CVS Caremark Financial Analysis

    By: Sunil Motwani

  • Introduction

    The two corporations I will be comparing in this financial analysis are the two

    largest pharmacy retailers in the drug store industry, Walgreens (WAG) and CVS

    Caremark (CVS). Both companies provide high quality pharmacy health care while

    serving as a convince store for everyday items. The main goal for each business is to

    help their patients and customers by enhancing access to care, lowering costs, and

    improving overall health outcomes. They do this by having a store on every corner to

    succeed in making sure all customers can conveniently and easily get the medication

    needed for their health.

    The analysis will first look at the history, as well as any recent news stories for

    each company. Next, a table will be shown of the Income Statement and Balance Sheet

    for each company in order to show the real difference in how each company allocates

    their money. This will also illustrate to us which of the two companies has more revenue

    and net profit within the drug store industry. Line graphs of the most recent five year

    stock prices will also be shown as well as each companies returns compared to the S&P

    500 index. The true financial analysis of whether or not the company is worth investing

    in comes next with the financial ratios. The ratios will include liquidity ratios, debt

    management ratios, asset management ratios, profitability ratios, and market valuation

    ratios. After the ratios, we will close up with the DuPont analysis which helps determine

    how well each company creates value and makes it simple for an analyst, and even a

    simple investor, to compare the valuation and returns with each other and within the

    industry as a whole.

  • CVS Common Size Analysis Income Statement

    Walgreens Common Size Analysis Income Statement

    12 months ended Aug 31, 2013 Aug 31, 2012 Aug 31, 2011

    Net sales 100.00% 100.00% 100.00%

    Cost of sales -70.76% -71.60% -71.61%

    Gross profit 29.24% 28.40% 28.39%

    Selling, general and administrative expenses -24.29% -23.56% -22.94%

    Gain on sale of business 0.03% 0.60%

    Equity earnings in Alliance Boots 0.48%

    Operating income 5.46% 4.84% 6.05%

    Interest expense, net -0.23% -0.12% -0.10%

    Other income 0.17%

    Earnings before income tax provision 5.39% 4.71% 5.95%

    Income tax provision -2.00% -1.74% -2.19%

    Net earnings 3.39% 2.97% 3.76%

    12 months ended Dec 31, 2013

    Dec 31, 2012

    Dec 31, 2011

    2013 (CS)

    2012 (CS)

    2011 (CS)

    Net revenues 126,761 123,133 107,100 100% 100% Cost of revenues -102,978 -100,627 -86,539 -81.24% -81.72% -80.80%

    Gross profit 23,783 22,506 20,561 18.76% 18.28% 19.20% Operating expenses -15,746 -15,278 -14,231 -12.42% -12.41% -13.29%

    Operating profit 8,037 7,228 6,330 6.34% 5.87% 5.91% Interest expense -517 -561 -588 -0.41% -0.46% -0.55% Interest income 8 4 4 0.01% 0.00% 0.00%

    Interest expense, net -509 -557 -584 -0.40% -0.45% -0.55% Loss on early extinguishment of debt -348

    -0.28% Income before income tax

    provision 7,528 6,323 5,746 5.94% 5.14% 5.37% Income tax provision -2,928 -2,441 -2,258 -2.31% -1.98% -2.11%

    Income from continuing operations 4,600 3,882 3,488 3.63% 3.15% 3.26% Loss from discontinued operations, net of tax -8 -7 -31 -0.01% -0.01% -0.03%

    Net income 4,592 3,875 3,457 3.62% 3.15% 3.23% Net loss attributable to noncontrolling interest 2 4

    0.00% 0.00%

    Net income attributable to CVS Caremark 4,592 3,877 3,461 3.62% 3.15% 3.23%

    Source: CVS Caremark Corp., Annual


  • Walgreens History

    Beginning in 1901, Walgreens opened its first store in the city of Chicago on the

    intersection of Bowen Avenue and Cottage Grove. The store was run by Charles R.

    Walgreen and about 15 years later in 1915, the city had five stores with more every year.

    The 1920s was a very busy time for the chain as hundreds of locations were being built

    all over the United States. Popularity increased tremendously when Walgreen invented

    the malted milkshake. Another reason the 20s was a very successful year for the

    company is due to the fact that in 1927 Walgreen Co. stock went public and by 1930 they

    had about 400 locations with annual sales above $4,000,000. As more stores were being

    built, in 1950 the company began to build self-service stores and by 1953 they were the

    largest self-service retailer in the country. The 60s were a proud decade for Walgreens,

    by the beginning of the decade they entered into the Puerto Rican market and filled their

    100 millionth prescription. They also became the first major drug chain to put the

    prescriptions into child resistant containers even though it wasn't required by the federal

    government yet. In the year 1975, the company reached a milestone of $1 billion in

    sales. With the 80s and 90s being so focused on computer technology, they started to

    install intercom computers in all Walgreens so they could connect to every pharmacy via

    satellite. They even offered next day photofinishing by 1982 and by 1984 they opened

    their 1000th store. The 90s brought more technology to the company when they added

    point of sale scanning to speed checkouts. Due to this they even opened a drive-thru

    pharmacy by 1992. By 1994 the company had reached 2000 stores. Walgreens was

    ahead of the game with the .com boom in the 2000s and by 1999 they launched allowing customers to view their prescriptions safely online. 10 years

    later they made a presence in all 50 states when opening their first pharmacy in Alaska.

    Today, Walgreens has over 7,000 stores nationwide and to keep up with government

    regulations and their social responsibility, they have started putting solar panels on the

    roofs of their stores and are planning to add thousands of charging stations for electric


  • CVS Caremark History

    CVS was and currently still is the fasted growing pharmacy retailer to exist. Even though

    Walgreens has been around for over 100 years, CVS has a little over 40 years in the business and

    with the same amount of stores. The first store opened in 1963 in the city of Lowell, MA. In the

    year 1996 the company Melville Corporation took the CVS Caremark symbol to the stock

    market and made it public. From the 80s till today it has been buying over local small pharmacy

    chains in order to build its name and value. By 2000, CVS had over 4000 stores nationwide.

    2006 was a big year for the company as they announced their MinuteClinic. This made CVS the

    first ever retail store to offer certified doctors to customers for a routine checkup and they could

    be prescribed their medication right in the store. CVS has been a big game changer ever since it

    first started and they have no signs of disappearing. With over 7,400 stores the chain has grew

    and taken over all competitions expect Walgreens and a little bit of Rite Aid. This pharmacy

    retailer is also a big seller in cosmetics and in 2008 they started another store which they have

    been putting right next to all CVSs as part of their beauty campaign.

  • Walgreens Recent Developments

    In March of 2008 Walgreens had to settle a lawsuit with the Equal Employment

    Opportunity Commission due to the alleged accusations that the company discriminated against

    African Americans. The settlement was for $24 Million and was split among 10,000 Afrian

    American employees of the company. Walgreens did not plead guilty. In the same year in June,

    Walgreens was accused of switching the dosage forms on three medications prescribed for

    Medicaid patients without doctor approvals in order to boost profits. The company had to pay

    $35 million to the federal government because all the Medicaid programs nationwide had to pay

    much more than they normally would have to. In 2012, Walgreens was in trouble with the DEA

    for not following the rules of transportation of Oxycodone. The retailer caused thousands of pills

    to be misplaced causing the DEA and public to fear they are now being sold on the streets of the

    black market. Finally, Walgreens would not stop the sale of Tabacco products as they made a

    big profit from it while their competitor CVS banned tabcacco products from their stores.

    CVS Recent Developments

    CVS has had their shares of trouble. From 2000-2003 CVS execs were charged with

    bribery by the federal grand jury for paying a state senator to act as a consultant for the company

    and paid him $1000 a month which he would spend on his travel and golf outings. Like every

    company nowadays, CVS was sued in 2007 for illegally dumping confidential patient

    information and settled with $315,000 to the state. The biggest lawsuit came in 2008 for

    deceptive business practices when the company tried telling insurance companies to cover the

    brand name medications which would bring almost double the money to CVS while costing the

    consumer the same amount. They settled for a whopping $39 million. But thats not their

    biggest, CVS had to pay up $77.6 million in fines due to the improper control in the sale of an

    ingredient used to make methamphetamine. Lastly some good news, CVS announced in 2014

    they will not s


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