Drug Stores Set to Profit From Obamacare
Phillip is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
As the implementation of Obamacare moves forward, drug stores are set to profit from it, as people who were previously not receiving treatment now have that option. The switch has many pharmacies changing operations, as they get ready for Obamacare's full implementation in 2014.
Walgreen is re-branding
Walgreen (NYSE: WAG) is re-branding over 370 locations into "Healthcare Clinics," and this shows the company is gearing up to provide medical services. The clinics are staffed by nurse practitioners, and this means the firm will now treat more than just strep throat and pink eye, for example. The more the company can offer, the more customers will visit the store for products and services.
I think this move will be a success, as there is currently a shortage of primary care physicians. Furthermore, with millions of additional people getting treatment for their ailments beginning in January, due to the Affordable Care Act (Obamacare), the amount of profits that the company will roll in could be staggering. The move also could take patients away from CVS Caremark (NYSE: CVS), which already has a high integration of products and services.
Analysts also see gains ahead for the company. EPS is expected to increase 7% this fiscal year, and another 13% next year. The real gains are expected next year, when the company profits from the Affordable Care Act. Revenue is set to increase by about 4.6% in 2014, according to a consensus of 21 analysts.
CVS Caremark offers it all
The potential profits that pharmacies could realize is echoed by CVS Caremark when it announced that it would use its stores to educate people about the coverage options. The company's efforts to promote the strategy show that there is considerable profit to be made by drug stores.
I see the company's offerings of a retail pharmacy, MinuteClinic and PBM (pharmacy benefit management) as giving the firm a competitive advantage. Offering all of these services provides savings to customers by combining the services, and therefore, lowering expenses. Those lower costs could be passed on to the consumer.
Analysts also think that the company is set for growth. EPS is projected to increase 16% this year, and another 12% next year. However, I think the uptake of Obamacare clients could result in even more substantial gains. After all, the competition for those clients could result in a price war between drug stores, and CVS' integration of services could allow it to lower prices without digging too much into margins.
Express Scripts looks to control costs
Express Scripts (NASDAQ: ESRX) recently merged with Medco. This increase in the company's size will allow it to put pressure on its suppliers in order to decrease the operating expenses associated with it. This could help lower the price of drugs, if competition between the drug stores for Obamacare patients heats up.
The company will further be able to control costs by encouraging members to switch to using generic drugs, which carry a higher profit margin for the drug stores. Furthermore, the company has a mail-order pharmacy, which can allow it to keep administrative costs down due to the volume increase that is expected with Obamacare.
This year, analysts expect EPS to improve 15%, and another 15% next year. However, I see greater profits next year due to the new healthcare plan. Curiously, analysts predict the company will increase revenue by 7.8% this year, and only 0.8% next year. However, there are no gaping flaws to the company's fundamentals.
Take your pick
With Obamacare nearly at complete rollout at the beginning of next year, I don't see there being a long period of time between when the drug stores begin to take on new patients, and when profits start rolling in. Shareholders could see substantial gains as early as next year's first quarter. All three of these companies are set for major profits, but the firms that secure their position the earliest will be able to keep profits flowing long into the future.
Obamacare will undoubtedly have far-reaching effects. The Motley Fool’s new free report, “Everything You Need to Know About Obamacare,” lets you know how your health insurance, your taxes, and your portfolio could be impacted. Click here to read more.
Phillip Woolgar has no position in any stocks mentioned. The Motley Fool recommends Express Scripts. The Motley Fool owns shares of Express Scripts. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!