Walgreen Longs For Express Scripts As CVS Fills More Pills
Walgreen’s (NYSE:WAG) same store sales dipped by 6% in April with an average of 8% fewer prescriptions filled at Walgreen pharmacies owing to its split with pharmacy benefits manager Express Scripts (NYSE:ESRX). On the other hand, its biggest competitor CVS has significantly benefited from the fallout last quarter as Express members looked for non-Walgreen pharmacies to fill their prescriptions, and ended up on CVS stores as the most convenient alternative. Walgreen competes with CVS Caremark (NYSE:CVS) and Rite Aid (NYSE:RAD).
View our analysis for Walgreen
Walgreen Should Act Quick Lest Customers Turn Sticky To CVS
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In the latest earnings announced by CVS Caremark, the drug retailer revealed that it has benefited significantly from millions of new prescriptions that came from the Walgreen-Express contractual impasse. As a result, CVS raised its full year guidance, and it has now turned more aggressive in a bid to retain these new customers.
The more time that Walgreen takes in renegotiating with Express Scripts, the stickier these new customers might become as they continue to frequent CVS drugstores and develop a relationship with its pharmacists. CVS has a 7,400-strong drug retail network, with significant geographical overlap with Walgreen stores, making it the strongest contender to divert a large part of close to 80 million prescriptions that could fall out of Walgreen this year to its stores, if the impasse continues. Prescriptions processed by Express Scripts comprised 12.5% of Walgreen’s prescriptions in 2011.
Now that Express Scripts received anti-trust clearance last month to integrate with another large pharmacy benefits manager Medco Health Solutions, which also brings significant business to Walgreen stores, it is all the more imperative that Walgreen tries to work a out a new deal with Express Scripts to defend its core prescriptions business from aggressive competitors like CVS Caremark and Rite Aid.
We currently value Walgreen with a $35 Trefis price estimate of its stock, which is almost in-line with the current market price.
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