CVS Health vs Walgreens Boots Alliance: A Five-Year Credit Trajectory

TL;DR

As of this publication, CVS Health carries an S&P rating of BBB with a negative outlook, while Walgreens Boots Alliance carries an S&P rating of BB- with a negative outlook — three notches lower and firmly in speculative-grade territory. Five years ago, both were mid-tier investment grade; the paths have diverged sharply. Both companies have announced major store closure programs: CVS closed roughly 900 stores from 2022-2024 as part of its HealthHUB transformation, and Walgreens announced in October 2024 a plan to close approximately 1,200 stores over three years. Walgreens was acquired by Sycamore Partners in a take-private transaction announced in March 2025, adding further uncertainty for lease underwriters about the go-forward corporate structure. For net lease, the practical implication is that CVS and WBA are no longer interchangeable credit bets — and this post walks through how to underwrite each in the 2026 environment.

The Current Credit Snapshot

Per the most recent public rating actions from S&P Global Ratings and Moody's Investors Service:

The practical gap: CVS is investment-grade; Walgreens is speculative-grade (the "junk" threshold is BB+/BB or lower). A three-notch spread between two stores on the same corner is the headline for net lease underwriters. Both carry negative outlooks, which means the agencies see further downgrade risk more likely than upgrade for both names — but Walgreens starts from a much weaker position.

As always, verify current ratings directly with the agencies before closing any transaction — rating actions can change at any time.

How They Got Here

CVS: The Healthcare Conglomerate Bet

CVS Health's trajectory through the last decade has been about transformation from retail pharmacy chain into a vertically integrated healthcare company. Major milestones:

• 2018: CVS acquired Aetna, the health insurer, for approximately $69 billion — a transformational combination that turned CVS into one of the largest integrated health companies in the U.S.
• 2022: CVS acquired Signify Health for approximately $8 billion (home health)
• 2023: CVS acquired Oak Street Health for approximately $10.6 billion (primary care clinics)
• 2024: Continued integration and announcement of additional store closures as part of the HealthHUB conversion program

From a credit perspective, the Aetna acquisition and subsequent acquisitions added substantial debt. S&P and Moody's initially downgraded CVS post-Aetna and have kept it at the lower end of investment grade. The addition of Signify and Oak Street extended the deleveraging timeline. Through 2023-2024, the credit narrative was: investment-grade but levered, with a multi-year deleveraging path.

The negative outlook (as of May 2025) reflects agency concern that:

• Integration of the healthcare acquisitions has been slower than expected
• Retail pharmacy profitability pressure continues (reimbursement rates, generic drug pricing, competition from Amazon Pharmacy)
• The 900-store closure program from 2022-2024 (announced across multiple tranches) signals retail footprint rationalization is ongoing

Walgreens: The Strategic Pivot That Didn't Work

Walgreens Boots Alliance's recent history is a cautionary credit story. Major developments:

• 2014: Formed through merger of Walgreens and Alliance Boots
• 2019-2022: Strategic investments in primary care (VillageMD stake, now primary investor), specialty pharmacy (Shields Health Solutions)
• 2023: Pressure on retail pharmacy margins intensified; dividend cut by nearly half in January 2024
• October 2024: Announced a plan to close approximately 1,200 stores over three fiscal years, including 500 in FY2025
• March 2025: Announced acquisition by Sycamore Partners in a take-private transaction

The credit trajectory has been unfavorable throughout this period. S&P downgraded WBA progressively from investment-grade to speculative-grade. Where CVS spent on acquisitions that broadened the business, Walgreens spent on strategic investments that underdelivered, and the retail pharmacy business that generated the cash has been compressing margins concurrently.

The Sycamore Partners take-private adds a new variable: Sycamore is a private-equity firm known for retail turnarounds. The go-forward capital structure, strategic direction, and store footprint under private ownership are different questions than they were under public ownership. As of this publication, the transaction is in process; terms and conditions are still being worked out.

What the Store Closure Programs Mean for Net Lease

Both companies have publicly announced store closure programs of meaningful scale:

CVS (2022-2024): approximately 900 stores across three phases, focused on underperforming locations and stores where the three-mile radius had other CVS stores serving the same customer base. These closures are largely complete.

Walgreens (October 2024-announced, ongoing through FY2027): approximately 1,200 stores over three years, with 500 targeted for FY2025 alone. This program is ongoing, and as of this publication a significant portion of the closures are still to come.

For net lease underwriting, the practical questions are:

Is the subject store on a closure list?

Neither company publishes the specific addresses of closure targets. However, certain markers correlate with closure risk:

• Above-market base rent — the highest-rent leases are most economically unattractive to keep operating
• Proximity to another CVS/WBA location — if the same company has two stores within three miles, closure of one to consolidate the other is a common pattern
• Lease near expiration — most closures happen at lease expiration rather than through mid-term termination
• Underperforming trade area — harder to assess externally, but market-level population/demographic trends matter

If the store is closed, what happens?

Both CVS and WBA lease forms typically include provisions that prevent the tenant from "going dark" (vacating without paying) in a way that disadvantages the landlord. Most common scenarios:

• Lease remains in place with no operations. Tenant continues to pay rent through the lease term but the store is dark. Cash flow continues but the property asset may depreciate through lack of use and the replacement tenant problem arises at lease expiration.
• Sub-lease to an alternative tenant. Tenant assigns the lease to a successor operator (grocery, gym, medical office, etc.) at or below the original rent. Common in CVS and WBA practice for closed stores.
• Lease termination with landlord consent. Tenant negotiates to surrender the lease, typically with a buyout payment.

Net lease investors with well-structured leases generally get paid through the term even if the store is closed, but the replacement-tenant question is real. Dark stores in challenging markets with purpose-built boxes can be difficult to re-tenant at original rent.

Lease Structure Conventions

CVS and WBA net lease forms are broadly similar:

Both Tenants

• Initial term: commonly 20-25 years — longer than dollar-store leases
• Renewals: many 5-year options (often 5-10 options stacked)
• Guaranty: corporate parent guaranty standard
• Rent escalations: often include fixed step-ups every 5 years (5-10% is common) though some leases are flat
• Building size: ~13,000-15,000 SF typically for freestanding
• Drive-thru pharmacy: present on most modern stores

CVS-Specific Considerations

• CVS store conversions to HealthHUB format (added clinical services, reduced retail) have happened at many locations. The physical footprint and tenant-improvement investment is tenant's cost, but the repurposing changes the box from "pharmacy plus retail" to "pharmacy plus clinic," which affects the re-tenantable universe at lease expiration.
• CVS Caremark (the PBM subsidiary) and the retail stores are legally the same corporate credit, but operational separation is increasing.

WBA-Specific Considerations

• The March 2025 Sycamore Partners take-private creates uncertainty about how the go-forward corporate structure will handle lease obligations. Most net lease forms allow the tenant to assign without consent to a creditworthy successor — but post-acquisition, the "successor" may be a leveraged buyout entity rather than a publicly traded corporate parent.
• VillageMD clinics (primary care partner) are often co-located in WBA stores; the economics of the combined footprint are part of the store-level performance analysis.

Cap Rate and Pricing Implications

Two general patterns brokers should expect:

1. CVS cap rates have historically traded tighter than WBA — for stores of similar size, lease term, and location, CVS typically commands a lower cap rate (higher price). The credit gap has widened this spread.
2. The absolute gap is widening in 2024-2026 — as WBA fell to speculative-grade, some institutional buyers (particularly life insurance companies and certain CMBS lenders) became restricted from purchasing below-investment-grade credit at their earlier thresholds. This has reduced buyer demand for WBA-credit deals and widened WBA cap rates further.

For a broker representing a seller of a WBA property, the buyer universe is narrower than it was three years ago, and pricing expectations should reflect that.

Underwriting Each in 2026

Underwriting a CVS Deal

• Confirm current rating status — CVS at BBB/BBB- negative is still investment grade, but another notch down takes it into a different tier
• Review HealthHUB conversion status of the subject store — full-format conversion vs traditional pharmacy affects re-tenantability
• Assess the local competitive landscape — is there another CVS within three miles? If yes, consolidation risk increases
• Model flat-rent vs step-up scenarios honestly
• Stress-test a potential rating transition from BBB to BB range on pricing

Underwriting a WBA Deal

• Begin from the assumption that this is speculative-grade credit — pricing should reflect that, not historical investment-grade assumptions
• Review the pending Sycamore Partners transaction status as of closing date — the take-private may complete, pause, or modify depending on financing and regulatory factors
• Consider whether the subject store is on the disclosed closure list (when information is available) or carries markers for closure risk (above-market rent, nearby WBA store)
• Evaluate the local real estate fundamentals — if WBA closes and leaves the box dark, what is the realistic re-tenant universe and at what rent?
• Stress-test the scenario where the successor entity from the Sycamore transaction is unable to meet ongoing rent obligations

Where Both Tenants Head From Here

Neither CVS nor WBA is in imminent distress, and both continue to be operating businesses with billions of dollars in annual revenue. That said, the trajectories are unambiguous:

• CVS is executing on a bet (healthcare integration) that may succeed or may require further retrenchment. Negative outlook reflects the uncertainty.
• WBA has already retrenched twice (dividend cut, store closures) and is now in private-equity hands, where the strategic path is unclear to outside observers.

For net lease investors, the right posture is probably: treat each lease as a location-and-lease-structure analysis first, and a corporate-credit analysis second. A well-located CVS with a long remaining term is a different investment than a poorly-located CVS with a short remaining term, and the same framing applies doubly to WBA. The credit rating matters, but the location fundamentals and lease structure are increasingly what drives investor returns as the tenant-level credit stories continue to play out.

The Bottom Line

Five years ago, CVS and Walgreens were widely viewed as comparable — two national drugstore chains on the same corners, with similar lease structures and broadly similar credit. That frame no longer holds. The three-notch rating gap, divergent strategic paths, and WBA's transition to private ownership have created two very different net lease investments that happen to share a legacy industry classification.

For brokers and investors who underwrite both names, the first discipline is recognizing the divergence — then pricing and structuring accordingly.

Editorial disclaimer. This article is published by Trestle Research for informational purposes only. It is not investment, tax, or legal advice. Credit ratings cited are current as of the dates noted and should be verified directly with S&P, Moody's, or Fitch before use in any transaction — rating actions can change at any time. Corporate actions (store closures, acquisitions) are drawn from the companies' public press releases and filings; status may have changed since publication. The Walgreens-Sycamore take-private transaction is in process as of writing; readers should verify current deal status. Always consult qualified counsel and your lender on specific deals.

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