$37.80
-0.40 (-1.05%)
Walgreen Company (WAG)
CAPS Rating:
The drugstores are engaged in the retail sale of prescription and non-prescription drugs and general merchandise. General merchandise includes, among other things, beauty care, personal care, household items, candy, photofinishing, greeting cards etc.
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This is a company that has been building out more retail locations aggressively, trying to reach 7000 stores nationwide. While they have a $1B mail-order business, they have explicitly and repeatedly rejected the idea of entering the pharmacy benefit manager segment. As a result, the margin of their pharmacy business, which still accounts for 2/3 of their revenue, has been shrinking dramatically, and they are losing market share.
CareMark, MedCo, ExpressScripts, and the rest will continue to take share away from this core part of WAG's business. WMT's $4 generic program will take the share of patients who do not have PBM coverage. And their expansion plan has been perfectly timed to peak during the most massive consumer slowdown in history. The margin expansion from overhead combined with slowing consumer sales should pretty well assassinate what WAG calls "front-end," all the retail stuff the stores sell that isn't drugs.
The in-store clinics and the aggressive regional home-care acquisitions - trying to make WAG into a one-stop-shop for healthcare needs - are good initiatives, but they are not going to counter the secular trends I mentioned above. I am so bearish on this company, even at its current valuation, that I find it difficult to express. However it is a blue-chip company, AAA-rated debt, and very little of it at that, so I would not recommend actually going short on the stock in real life unless you have a catalyst in mind.
they are in the PBM business via WHI (walgreens health initiatives)
A quibble. This service helps physicians and patients coordinate their medications, but does not involve itself in contracting with insurance plans to develop formularies to lower prescription benefit costs. In other words, it is not in the same space as Medco, Express Scripts, Wellpoint Next Rx, and the Caremark part of CVS Caremark.
This is actually starting to look smart to me. Who knows what regulators are going to do to the managed-Rx space?