Recently, we have reiterated our Neutral recommendation on
) with a target price of $31.00.
Walgreen reported EPS of 62 cents per share in the third quarter of
fiscal 2012, lagging the year-ago earnings by 3 cents but in line
with the Zacks Consensus Estimate. As expected, the termination of
) contract took its toll on Walgreen with a negative impact of 6
cents per share on the bottom line.
Also, the company incurred a charge of 1 cent per share
associated with the latest agreement with Alliance Boots GmbH, a
global international pharmacy-led health and beauty group. Total
sales were $17.8 billion in the third quarter, down 3.4% year over
year and nominally missing the Zacks Consensus Estimate of $17.9
In order to negate the impact of the Express Scripts contract loss,
Walgreen has been taking a number of strategic steps to drive
growth. In June 2012, the company entered into a strategic
partnership to buy 45% stake in Alliance Boots GmbH. Jointly they
expect to form the world's first pharmacy driven health and
wellbeing retail with more than 11,000 stores in 12 countries.
Walgreen expects this transaction to be accretive to its EPS by
23 -27 cents in the first year. The company also expects the
synergies across joint operation to be between $100 and $150
million in the first year and $1 billion by the end of 2016.
Earlier, in May 2012, the company acquired certain assets of
BioScrip's (BIOS) community specialty pharmacies and centralized
specialty and mail service pharmacy businesses that include a
national network of 30 locations in 16 states across the US and the
District of Columbia, primarily serving HIV, oncology and
The acquisition fits Walgreen's strategy to expand community
pharmacy and bring additional specialty pharmacy products and
services closer to patients. Moreover, leveraging on its strong
cash balance, the company has rewarded its shareholders and is also
well equipped to pursue suitable acquisitions going forward.
EXPRESS SCRIPTS (ESRX): Free Stock Analysis
WALGREEN CO (WAG): Free Stock Analysis Report
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Although the client retention rate in fiscal 2012 is expected to be
at 97%-99% of fiscal 2011 prescription volume, the non-renewal of
the Express Script contract will remain a major headwind. Walgreen
has also been impacted over the past few quarters by high
unemployment levels and lower discretionary spending.
Our recommendation is backed by a Zacks #3 Rank (Hold) in the short