Skip to main content

Drug stores are seeing significant benefits from their COVID-19 testing and vaccination programs. Not only are these services driving profits in the here and now, they’re an investment in future business for many pharmacies – yielding a trove of consumer data and driving a return to brick and mortar shopping.

With vaccinations just beginning to kick off and retail revenues expected to rise by as much as 8% this year, shares of cheaply-valued drug stores may be one of the top re-opening trades on the table. 

Related Stocks: CVS Health Corporation (CVS), Walgreens Boots Alliance, Inc. (WBA), Rite Aid Corporation (RAD)

US drug store chains like CVS, Walgreens, and Rite Aid are seeing big-time benefits from their distribution of COVID-19 tests and vaccines, making them one of the top candidates for a re-opening trade.

As CNBC notes, drug stores will be paid for each vaccine dosage they administer, and the government will pick up the cost if a person does not have health insurance. Therefore, pharmacies are paying virtually zero to administer the shots and boost foot traffic, and many vaccine recipients will undoubtedly do some shopping while they visit the store.

In the final quarter of 2020, CVS Pharmacy’s (CVS) earnings were boosted by COVID-19 testing, even as the pandemic weighed on non-prescription sales. On an adjusted basis, earnings per share were $1.30 while revenue rose 4% to $69.55 billion. Each of those beat analyst expectations for EPS of $1.24 and revenue of $68.73 billion.

In February, the company said they’d administered about 15 million tests at 4,800 locations. Investors are hopeful CVS and other drug stores’ pharmacy departments can continue expanding their comeback from the COVID crash through vaccinations. Per the Wall Street Journal, about eight million people who received coronavirus tests from the chain hadn’t filled a prescription at a CVS in the previous year, signaling that COVID-19 services promise to bring in new customers.

Competing drug store chain Walgreens Boots-Alliance Inc. (WBA), which is now able to administer approximately 3 million tests a month across 5,000 locations, recently announced they’d begin selling the first over the counter COVID-19 test kit – Pixel, manufactured by LabCorp (LH) – targeting stores that don’t have testing on-site.

​Testing for the virus contributed about $400 million in CVS revenue during the fourth quarter, according to the company. For the coming year, Bloomberg notes that CVS expects a $400 million to $500 million benefit from COVID-related activities. Jefferies is even more optimistic, estimating that each shot will have a $13 to $15 gross margin and could yield about $1 billion in incremental gross profits for CVS over the next year.

CVS is now administering COVID-19 vaccines in nearly 1,200 stores across 29 states and Puerto Rico, giving them the capacity to administer “[up to] 25 million shots per month,” according to CEO Karen Lynch.

Walgreens has provided approximately 5 million COVID-19 vaccinations. As part of the Federal Retail Pharmacy Program, Walgreens is…

To read the rest of this Market Insight, START A FREE TRIAL

You’ll also gain access to:

  • Our Daily Investment Insights
  • Joe Mac’s Market Viewpoints
  • All of MRP’s Active Thematic Investment Reports
  • MRP’s Entire Research Library

If you already have a subscription,  sign in