Walgreen in Elite League - Analyst Blog
September 15 2011 - 6:15AM
Zacks
Recently, Walgreen
(WAG) was ranked 29th among the top 30 technology
innovators in the U.S, according to the 2011 InformationWeek 500.
The company added another feather in its cap when it became the
top-ranked company in the retail and general merchandising
category. The company considers both the achievements as huge
recognition for its innovative technology in healthcare industry
given the company secured a place in the top 30 list (in 2010 it
was ranked 153 and secured the 3rd position among retail
and general merchandising).
Walgreen’s IT division is presently
developing Walgreens 2.0, which will likely enhance its technology
infrastructure across multiple platforms, including its network of
more than 7,700 stores.
Walgreen has been impacted over the
past few quarters by high unemployment levels and lower
discretionary spending. Moreover, the company remains challenged
due to increased competition from major players like CVS
Caremark (CVS).
In addition, Walgreen decided not
to renew its agreement with Express Scripts (ESRX)
as it considered the terms to be unfavorable. With this move,
effective January 1, 2012, Walgreen’s 7,700 pharmacies will not be
a part of Express Scripts’ pharmacy provider network.
Walgreen estimates that Express
Scripts, as a pharmacy benefits manager, processes 90 million
prescriptions that are not expected to be filled by Walgreen in
fiscal 2011, representing approximately $5.3 billion in annual
sales. Hence, we believe the decision not to renew the contract
will affect the company’s future growth.
However, Walgreen is working toward
establishing itself as a leading provider of pharmacy, and health
and wellness solutions. The company has been taking steps over the
last few years to align its assets These include the acquisition of
Cardinal Health’s (CAH) Specialty Pharmacy
business and agreement with Omnicare to divest its long-term care
pharmacy business in exchange of the latter’s home infusion
business.
Thereafter, during the third
quarter of fiscal 2011, Walgreen sold its Pharmacy Benefit
Management business to Catalyst Health (CHSI) for
$525 million. By divesting its non-core assets, Walgreen will be
able to better focus on its drug stores. On the other hand, the
company acquired online retailer drugstore.com to gain a strong
foothold in the online arena as it will be able to access more than
3 million online customers.
Moreover, the company has made
satisfactory progress in the Customer Centric Retailing (CCR)
rollout and in meeting the targeted savings under the rewiring
initiative. The benefits from these initiatives will be realized
over a period of time. Leveraging on its strong cash balance, the
company has rewarded its shareholders and is also well equipped to
pursue suitable acquisitions going forward.
Currently we have a ‘Neutral’
recommendation on the stock.
CARDINAL HEALTH (CAH): Free Stock Analysis Report
CATALYST HEALTH (CHSI): Free Stock Analysis Report
CVS CAREMARK CP (CVS): Free Stock Analysis Report
EXPRESS SCRIPTS (ESRX): Free Stock Analysis Report
WALGREEN CO (WAG): Free Stock Analysis Report
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