Walgreen Updates: Express Scripts Dispute Hurts, Stock Value Still $38
Walgreen (NYSE:WAG), the leading drugstore chain with 8,400+ locations across the U.S, recently released its October results with weaker than expected sales as its dispute with pharmacy benefits manager Express Scripts started to weigh on the prescriptions filled by it. Walgreen competes with the other leading pharmacy services providers CVS Caremark (NYSE:CVS) and Rite Aid (NYSE:RAD).
View our analysis for Walgreen.
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During October, same-store front-end sales rose 1.7%, way lower than the previously expected 5% growth. Same-pharmacy sales went up just 3% against expectations of 4-5% growth. Apart from the 1% drop in footfall and weaker flu shots demand, Walgreen estimated that the negative impact on prescriptions filled related to Express Scripts was about 0.6 percentage point. After the exit from Express Scripts network, the company is expecting to achieve 97-99% of the past fiscal year’s prescription volume in fiscal 2012, which could be a rather optimistic target to achieve.
The Walgreen-Express Scripts Impasse
In June 2011, Walgreen announced that it would discontinue filling prescriptions for people covered by Express Scripts from Jan. 2012 after its contract renewal negotiations failed on the grounds of uncompetitive reimbursement rates offered by the pharmacy benefits manager. Shares of Walgreen have fallen more than 20% since it first announced the news. The stalemate threatens to cost Walgreen about $5 billion in annual sales, or about 7 percent of its business. Walgreen recently projected the possibility of loss in 2012 of more than $3 billion in revenue because of the planned loss of business from customers whose prescription drug coverage is managed by Express Scripts. Even though Walgreen is trying to minimize the loss, its competitors CVS Caremark and Rite Aid stand to benefit if Walgreen and Express Scripts fail to reach a compromise agreement before next year.
Walgreen will soon be presenting at the Morgan Stanley Global Consumer Conference in New York on Nov 17.
We value Walgreen with a revised $38.30 Trefis price estimate of its stock, which is at a 20% premium to the current market price. 
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