The deployment of the COVID vaccine will be a boon for these 2 beaten stocks

This fall, U.S. officials publicly outlined details of a plan to provide Americans with free COVID-19 vaccinations. The Operation Warp Speed ​​team said at the time that government agencies were preparing to begin shipping these vaccines within 24 hours of the FDA issuing an emergency use authorization. A recent agreement between the Department of Health and Human Services (HHS) and large drugstore chains should go a long way towards achieving this goal.

As part of the plan, people will be able to get vaccinated against the coronavirus at pharmacies such as CVS (NYSE: CVS), Walgreens (NASDAQ: WBA), Rite Help, as well as other retailers engaged in pharmacy business such as Costco, Kroger, and Walmart.

Three out of five pharmacies in the United States will be part of the network providing the vaccines, which could be widely available to the general public by April. This will likely result in a wave of foot traffic to these pharmacies, which could translate into a noticeable increase in income. And for CVS and Walgreens, it could inject energy into stock prices which have generally been down for half a decade.

The mood of the market has changed

Since July 2015, CVS and Walgreens stock prices have fallen by 40% and 60% respectively. Their decline was largely driven by investor expectations. Both companies’ price-to-free cash flow ratios fell by about 60% during this period. This is a clear indication that investors generally believe that meaningful growth for these companies is a thing of the past.

As the two companies tried to adapt to the changing healthcare environment – CVS by buying Aetna in 2018, and Walgreens using its scale to try to squeeze cash from partnerships and operations – the market lost confidence in their brick and mortar. business model. The pandemic has taken a heavy toll on their foot traffic for much of 2020, but the rollout of COVID-19 vaccines could reverse that trend.

CVS Price to Free Cash Flow given by YCharts

Beyond the broader vaccine distribution agreement, the U.S. government has contracted with Walgreens and CVS to manage immunizations for at-risk populations and staff members of long-term care facilities such as nursing homes. retirement and assisted living facilities. Companies will receive supplies to administer the vaccines, but will need to coordinate inventory, planning and administration.

Extension of the vaccine

In order to meet its share of the demand for COVID-19 vaccines, CVS has been working to recruit additional staff. And Walgreens and CVS have pushed for the government to relax “scope of practice” regulations regarding who is allowed to administer the vaccine. In response, HHS issued guidelines in October that will allow pharmacists, pharmacy technicians and licensed interns to do so. Typical pharmacies have twice as many technicians as licensed pharmacists, so this change will dramatically increase their ability to get people vaccinated.

Although Walgreens has yet to comment on its plans, CVS has announced that it will hire an additional 15,000 workers to administer the vaccines. More than two-thirds of them are expected to be pharmacy technicians. Currently, the company has 60,000 pharmacy technicians and 34,000 pharmacists in its 9,900 points of sale. And the company has expanded its cold storage capacity, recognizing that vaccines closest to regulatory approval must be stored at temperatures well below freezing.

In addition to the COVID-19 vaccine, CVS says it plans to deliver 18 million flu shots this year, up from 11 million in 2019. Walgreens is no doubt expecting a similar wave of vaccine applicants.

Investing is the future

CVS and Walgreens shares are both trading at near decade valuations. Although the pandemic has resulted in a drop in foot traffic, vaccine deployments are poised to return tens of millions of Americans to their conveniently located stores. CVS has indicated that it will expand several facets of its business to take advantage of the opportunity. Walgreens undoubtedly does the same.

With the overall stock market trading at earnings multiples similar to those seen at the top of the dot-com bubble, I’m inclined to give a few companies the benefit of the doubt that are cheap relative to their past valuations, paying nice dividends – – in their current actions, CVS is reporting 3% and Walgreens 4.8% – and are set to serve as the focal point for a national effort to immunize Americans against the worst pandemic in a century.

Investors have criticized many brick-and-mortar retailers over the past decade for good reason, but I think these drugstores are in a better position than most to turn around. I also think their stocks will soon start to reflect optimism about companies that haven’t been around for years, as people eagerly flock to their stores for vaccines that give them the chance to safely return to whatever. thing like their normal life before the pandemic.