Walgreens Boots Alliance vs. CVS Health: What's the Better Turnaround Play?

David Jagielski, The Motley Fool

Fri, Jan 24, 2025, 5:45 AM 5 min read

Walgreens Boots Alliance (NASDAQ: WBA) and CVS Health (NYSE: CVS) face uncertain paths forward. They have both undergone management changes and are deploying turnaround strategies, which leaves a lot of uncertainty out there for investors who are considering taking a chance on them right now.

If you're willing to stomach some risk, these could be good contrarian plays to consider -- but which one is the better option today?

The case for Walgreens

Walgreens has lost a mammoth 77% of its value over the past three years. Tim Wentworth took over as CEO about 15 months ago and has already cut the company's dividend, announced plans to shut down 1,200 stores, and is looking at wide range of options, including selling assets.

The bullish premise rests in part on the idea that after such a beating, the stock may have bottomed out. It has been rallying since the company posted its fiscal 2025 first-quarter results on Jan 10. Investors were excited that Walgreens beat expectations for both revenue and adjusted earnings per share, perhaps signaling that the business is indeed moving in the right direction. Sales totaled $39.5 billion for the period, which ended on Nov. 30, well above analysts' consensus estimate of $37.4 billion.

Meanwhile, Wentworth still says the goal for 2025 is to work on the company's footprint, controlling costs, and improving cash flow. Those are all excellent priorities that -- if well executed on -- could lead to a stronger bottom line, making the healthcare stock a potential turnaround play.

The case for CVS Health

The sell-off of CVS stock hasn't been quite as extreme as in the case of Walgreens -- it has fallen by nearly 50% in the past three years -- but that's arguably for good reason. Its business is more diverse. Rising medical costs have been hurting its bottom line, but its strengths in its other business units have allowed it to remain profitable.

New CEO David Joyner took over in October as the business looks to increase its stability and predictability. With a strong background that includes 37 years in healthcare and pharmacy benefits management, Joyner may be an ideal leader to help CVS find the right path forward. In past quarters, the company has struggled to provide investors with reliable guidance, as its results have often fallen short of it. If management under Joyner can simply do a better job of projecting the company's top and bottom lines, that alone could help it avoid significant post-earnings sell-offs and give investors greater confidence in the business.

While rising medical expenses have put a dent in the company's earnings, the silver lining here is that CVS still reported an operating profit of $832 million in 2024's third quarter. That was a steep decline from the $3.7 billion operating profit it reported a year earlier, but strong growth in its health services segment prevented the plunge from being even worse and allowed the company to remain profitable. Walgreens, by contrast, is still struggling to stay out of the red.

CVS' diversification also opens up more options for the business down the road. It has been rumored to be in discussions about spinning off some parts of its business. Spinoffs can allow a company to focus its efforts on the most promising, high-growth areas of its operations, and offloading a business unit that may be dragging the entire entity down can free up significant cash. While there's no guarantee that CVS will sell a section of the company, there are potential opportunities to consider.

Why CVS looks like the better option right now

Walgreens stock may be an appealing option for contrarian investors because of how cheap it is, but it could end up being a value trap. Its pharmacy business could continue to struggle in an increasingly competitive world where consumers are steadily shifting more of their shopping online. When same-day delivery is becoming more commonplace in e-commerce, being the neighborhood pharmacy is not as advantageous as it may have been in years past.

CVS is at least still profitable, and with a more diversified business, it also has more options to consider when looking at the long term. It faces a lot of uncertainty, but it looks like a far better buy at this point than Walgreens.

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