Walgreen Heads to $44 with Prescriptions Business Growth

Walgreen (NYSE:WAG), the leading drugstore chain with more than 8,210 locations across the U.S, crossed 20% retail prescriptions market share in the U.S, now filling one in five of all retail prescriptions. Walgreen competes with the other leading pharmacy services provider CVS Caremark (NYSE:CVS) and Rite Aid (NYSE:RAD). It has recently offloaded its pharmacy benefits management business with the sale of Walgreens Health Initiatives (WHI) to Catalyst Health Solutions for $525 million (See CVS Sees Value in Pharmacy Benefits Business While Walgreens Is Selling) to focus solely on its retail business. It has also recently acquired drugstore.com to further strengthen its online presence in retail pharmacy (See Looking at Walgreen Bid for Drugstore.com).

We value Walgreen with a $44 Trefis price estimate of its stock, which is at a 30% premium to the current market price. 

Walgreen now fills one in five of all retail prescriptions

With a 5% increase in the number of prescriptions filled in fiscal 2011, Walgreens retail prescription market share has now crossed 20%. With this, it has increased its market share by more than 2 percentage points from 18% to 20% within the last two years. This growth in market share benefited from the addition of 450 new drugstores as well as from the acquisitions of Duane Reade and drugstore.com.

The completion of drugstore.com acquisition in July 2011 has provided Walgreen an expanded multi-channel reach to an additional 3 million online customers. The number of retail prescriptions filled by Walgreens has been growing 2-3% ahead of the industry growth rate. At this rate, we expect Walgreens to exceed 22% market share over the next five years.

If however, its market share stays close to the current levels of 20%, it would lead to a 10% downside to the Trefis price estimate given our current forecasts.

With the increase in the number of prescriptions filled and market share, Walgreens achieved a top-line growth of 7% for the fiscal year 2011. It was also supplemented by 5% growth in front-end sales with expanded range of product offerings under general merchandise including fresh foods, groceries and even private label beer (See Walgreens Can Add Fiz to Sales with Private Label Beer Offering) with more space allocated to groceries (See Why Walgreen & CVS Are Shifting to Selling Groceries).

View our detailed analysis for Walgreen.

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