Is Walgreens Losing the War?
Andrew is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Before the end of the year, I wrote a blog that outlined a dispute between Walgreens (NYSE: WAG) and prescriptions benefit manager, Express Scripts (NASDAQ: ESRX). Since that post was written there have been numerous rumors and discussions about a possible deal that could be struck between the two parties before the New Year. The New Year has come and gone and no resolution has been reached. As the two sides have split ways, who will draw the short end of the stick?
In the near future, and as far as 2012 goes, it looks like Walgreens could end up with that stick. Earlier today, Moody’s announced that they were looking into a possible downgrade of some of Walgreen’s credit rating. This downgrade is directly related to the result of allowing the deal with Express Scripts to lapse. Moody’s stated that the lack of a deal “puts a sizable amount of revenue at risk.”
Despite the pending credit downgrade, Walgreens has been making good traction. They ended 2011 with strong sales numbers from a successful holiday season, and they continue to see positive results in their dispute with Express Scripts. Just a few days into the New Year, Walgreens announced that they have seen tens of thousands of pharmacy patients that have chosen to remain with Walgreens and enroll in their Prescription Savings Club. Walgreens lowered the enrollment cost to $5 for an individual and $10 for a family for the month of January.
So far this year, Walgreen’s stock price has been relatively unaffected by the negative and positive news. Their price has remained right around $33 a share. As the current fiscal quarter continues for Walgreens, investors will be very sensitive to any news about revenue loss or an earnings miss.
This showdown between Walgreens and Express Scripts is like a high stakes poker game; neither party wanting to fold or show their hand. With no end in sight to their standoff, the determining factor here may just be the financial success that Walgreens manages these next few fiscal quarters. If they miss earnings and revenue is down, look for the white flag to be flown at Walgreens Corporate.
Andrew Dillard owns no position in any of the above mentioned companies.