Flu Season Peaking? Here's What It Means for CVS Caremark Corporation, Walgreen Company, and Rite Aid Corporation

The flu is in full swing, with 35 states experiencing widespread activity and 20 states reporting high levels of flu-like illness, according to last week's FluView report from the Centers for Disease Control and Prevention, or CDC.

While the timing, severity, and length of the flu season is tough to pin down, it seems it's spreading quickly, and that means plenty of foot traffic for retail pharmacies CVS Caremark (NYSE: CVS  ) , Walgreen (NYSE: WAG  ) , and Rite Aid (NYSE: RAD  ) .

Unpredictably predictable
The flu hits epidemic levels every season, usually in February. It seems this year won't be an exception, given a jump from 25 to 35 states reporting widespread flu activity.

The embrace of patient-care models such as CVS's MinuteClinics suggests that patient demand for services, prescriptions, and over-the-counter medicine is picking up across retail pharmacies as the flu spreads. The migration of common health-care services, including diagnosing and prescribing treatment for the flu, to CVS and Walgreen from doctor's offices reflects a tidal shift in the way patients demand and receive care. Insured and uninsured patients no longer need to make off-hours visits to emergency rooms or beg their doctor to squeeze in an appointment. Instead, patients can hit their corner pharmacy for a quick checkup, get their prescription filled, and pick up cough syrup and ibuprofen all in one stop.

That's not only good news for CVS and Walgreen, the two largest operators of such in-store clinics, but also for insurance companies, which are increasingly embracing retail clinics' lower costs. The adoption of store clinics by health plans and government-sponsored programs is one reason that, according to CVS, MinuteClinics are posting comparable sales growth percentages in the high teens to low 20s.

And while CVS and Walgreen probably benefit the most from the shift, Rite Aid isn't left out altogether. Rite Aid's chainwide marketing blitz to provide patients with flu shots increases foot traffic during flu season, too.

All three will face stiff year-over-year comparisons, given that last season's flu was particularly potent. But CVS appears best positioned to capture flu-driven revenue this season, since it operates 743 in-store clinics. CVS plans to have 1,500 of the clinics open in its stores by 2017. Walgreen, in comparison, operates about 400, up from 350 a year ago.

The spike in the number of clinics suggests that flu-related sales will climb even more next season, as we should see an increase in the number of flu shots and of patients turning toward retail pharmacies for care, in the wake of Medicaid and private insurance expansion tied to health-care reform.

Fool-worthy final thoughts
Thanks in part to opening 42 new clinics in the past year, sales at CVS MinuteClinics grew 18% year over year in the third quarter. CVS administered more than 3 million flu shots across its stores through October. Over at Walgreen, the company provided 6.4 million flu shots to customers in the third quarter, a million more than a year ago. And in its third-quarter earnings conference call, Rite Aid was guiding for 2.5 million flu shots during this year's flu season. That suggests plenty of opportunity for retail pharmacies to convert customers into script and front-end sales this flu season.

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