Walgreen Takes Some Steps In New Direction
RetailerWalgreen ( WAG ) has shuffled the deck to get some new cards going forward.
The 112-year-old company has made three moves in the past couple of years.
First, and most recently, the company announced in March a 10-year agreement with U.S. medical distributorAmerisourceBergen ( ABC ). Analysts said the pooled purchasing power will make the two companies the world's largest buyer of generic drugs.
Second, in August 2012, Walgreen bought a 45% stake in Switzerland-based Alliance Boots, a retailer offering pharmaceuticals, health and beauty products. Before Boots, Walgreen's revenue was largely a U.S. story.
The Alliance Boots stake increases exposure to foreign currency, primarily the British pound sterling. Walgreen translates the foreign currency into the U.S. dollar. So, a weak dollar helps Walgreen's top and bottom lines.
Third, Walgreen announced in July 2012 a multiyear agreement with pharmacy benefits managerExpress Scripts ( ESRX ), ending a more-than-yearlong standoff over payments.
The fight cost Walgreen $4 billion in lost revenue, according to analysts. In fiscal 2012 and 2013, revenue growth dropped to 0% and 1% respectively. This year the Street expects sales to rise about 5%.
The long-term view looks strong for Walgreen. A demographic tilt toward older people should help drug sales. In fiscal 2013 ended in August, prescriptions accounted for 63% of revenue.
Funds have upped their stake in the stock in each of the past three quarters. Fidelity Contrafund and Magellan were among the funds opening or increasing positions in Q3.
One risk to Walgreen is interest rates. As of August, the company had $1.6 billion in long-term debt with floating interest rates. Each 1% rise or fall in interest rates will boost or cut annual interest expense by $16 million, the company revealed in its 10-K report.
Walgreen's annualized dividend yield is 2.1%.