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Amazon's Physical Pharmacy Not a Grave Threat: 3 Stocks to Buy

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Retail drug store heavyweights’ stocks have been southbound since the news of Amazon (AMZN - Free Report) exploring options to enter into the brick-and-mortar pharmacy space surfaced. The e-commerce giant’s earlier entry into the online pharmacy market has already grabbed a significant chunk of market share from the legacy retail drug store space. Needless to say, this latest speculation has come as a major blow to the industry, putting retail pharmacy and drugstore stocks in a tighter spot.

Let us delve deeper.

More on the News

A Business Insider report came up with the speculation that there have been discussions about setting up stand-alone stores in a few locations, including Boston and Phoenix. Further, per the report, which cites insider sources, Amazon is exploring plans of placing the pharmacies inside Amazon-owned Whole Foods locations.

Pandemic-Led Industry Prospects Attracting External Players

Through 2020, the brick-and-mortar pharmacy retailers gained enormous prominence with their vast pharmacy networks serving as COVID-19 testing centers. Since the end of 2020, these networks have been collaborating with the government and playing a pivotal role in launching vaccination drives across the nation.

CVS Health (CVS - Free Report) saw greater engagement in expanded set of digital health services such as antibody and PCR testing, vaccinations and omni-channel pharmacy through the pandemic months. The company’s first-quarter revenues registered more than 80% increase in visits to its flagship digital properties on a year-over-year basis.

Walgreens (WBA - Free Report) recently announced that it is set to extend pharmacy hours of operation each Friday in the month of June for walk-in vaccinations. The company along with Abbott recently launched a pilot program to increase access to rapid testing for Philadelphia residents with Pennsylvania Electronic Benefit Transfer card. In May, it began administering Pfizer’s COVID-19 vaccination to adolescents aged 12-15. Despite lower foot traffic in its pharmacies during the COVID months, the company’s response toward combating the pandemic has led to acceleration in its retail pharmacy business growth.

Supermarket retailers like Kroger (KR - Free Report) too is currently emphasizing on its retail pharmacy part of the business, which it expects to continue to grow in 2021 banking on COVID-related drives.

Legacy pharmacy retailers are leaving no stone unturned to earn from the lucrative prospects of retail pharmacy and drugstore space. At this stage, it will not be a surprise if Amazon, which is already benefiting from pandemic-driven online drug retailing (Amazon pharmacy was launched in November 2020), chooses to push itself into brick-and-mortar pharmacy space to gain further.

More of a Gimmick Than a Threat

Going by an IBISWorld report of January 2021, the U.S.Pharmacies and Drug Stores industry’s market value is expected to reach $319.3 billion, at a growth rate of 3.3%, this year. This growth rate is faster than retail trade sector’s overall expected growth. The report noted that the Pharmacies & Drug Stores industry in the United States is the 6th ranked Retail Trade industry by market size and the 28th largest in the United States.

To grab this enormous business opportunity, external non-healthcare players have entered into this market from time to time. Amazon, back in 2018, acquired pharmacy delivery startup PillPack to enter the U.S. healthcare space. The move clearly had the industry worried that Amazon's push into the healthcare industry will hurt the existing powers. However, it was a temporary setback. The big players in the market quickly revamped their business models through partnerships with startups as well as in-house initiatives to give Amazon tough competition.

If the speculation holds ground, we expect to see a similar situation this time around as well.

Meanwhile, we also take the example of Amazon’s healthcare JV with two other non-healthcare power houses — Berkshire Hathaway and JPMorgan Chase — called Haven. In spite of contributions from three bigwigs, Haven closed down its operations in less than three years from its launch in January 2021. Per many market analysts, apart from COVID-19 led cancellation of elective and non-emergency procedures, Haven was unable to sustain itself amid local market price competition.

Therefore, investors should not lose optimism and continue to discover the enormous business opportunities this industry holds.

Three-Month Price Performance

Zacks Investment ResearchImage Source: Zacks Investment Research

Buy 3 Stocks With Prospering Pharmacy Retail Arms

Walmart Inc. (WMT - Free Report) : In terms of vaccination drive, the company has nearly 20,000 pharmacists and pharmacies participating in it. Further, the company in June offered members with thousands of medications at a discount with ‘Rx for less’ program. The Zacks Consensus Estimate for fiscal 2022 earnings indicates year-over-year increase of 7.9%. Walmart, a Zacks Rank #2 (Buy) stock, has risen 5.5% in the past three months.

Herbalife (HLF - Free Report) : This nutrition products company’s percentage of U.S. business is growing through distributors who operate a Nutrition Club model, which represents the majority of its volume in the country. Amid the pandemic, the company witnessed growth in the average number of unique customers. The Zacks Consensus Estimate for 2021 earnings indicates year-over-year increase of 33.7%. Herbalife, a Zacks Rank #2 stock, has risen 15.2% in the past three months.

UnitedHealth Group Incorporated (UNH - Free Report) : UnitedHealthcare's pharmacy focuses on total health value and lowering costs.With its large network of 67,000 national and independent pharmacies, it offers flexible pricing structures and a range of retail pharmacy options. The Zacks Consensus Estimate for 2021 earnings indicates year-over-year increase of 10.3%. UnitedHealth, a Zacks Rank #2 stock, has rallied 9.7% in the past three months.

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