Barclays Maintains an 'Underweight' on Walgreen (WAG); Current Earnings Don't Matter
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Price: $76.05 --0%
Rating Summary:
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Rating Trend: = Flat
Today's Overall Ratings:
Up: 12 | Down: 15 | New: 40
Rating Summary:
0 Buy, 0 Hold, 0 Sell
Rating Trend: = Flat
Today's Overall Ratings:
Up: 12 | Down: 15 | New: 40
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Barclays maintains an 'Underweight' on Walgreen (NYSE: WAG) price target of $29.00.
Barclays analyst says, "Once again, WAG's decision to exit Express Scripts' (Nasdaq: ESRX) pharmacy networks overshadowed its quarterly earnings, which were roughly in line with expectations. The company has now provided investors with some indications about the impact of losing the ESRX business, though we felt management was long on assumptions and short on actual data to substantiate their numbers. In fact, without a greater amount of information, we are not prepared to change our current view that the company can keep about 15% of the former ESRX scripts and cut about $200 million of expenses over a multi-year period. Most importantly, it is nearly the beginning of October and the contract expires on Dec 31, and there is no resolution in sight. A court has pushed the parties into arbitration to resolve a lawsuit ESRX filed against WAG, but it is unclear whether this process will address the entire disagreement about reimbursement rates or just the issues in the lawsuit. Meanwhile, we think customers are already changing pharmacies, now that many employers and health plans have sent out letters saying WAG would be out of the ESRX network effective Jan 1. There is no reason anyone needs to wait until year-end to switch stores, especially for new prescriptions. Even if the dispute is resolved, we expect lasting damage to WAG's customer relationships, and this will be compounded if the ESRX/Medco merger is completed."
"We are introducing a 1Q12 EPS estimate of $0.67 and lowering our FY12 estimate by $0.06 to $2.68 given our belief that the dispute with ESRX is already impacting results. Our FY12E EPS remains at $2.74."
For more ratings news on Walgreen click here and for the rating history of Walgreen click here.
Shares of Walgreen closed at $33.77 yesterday.
Barclays analyst says, "Once again, WAG's decision to exit Express Scripts' (Nasdaq: ESRX) pharmacy networks overshadowed its quarterly earnings, which were roughly in line with expectations. The company has now provided investors with some indications about the impact of losing the ESRX business, though we felt management was long on assumptions and short on actual data to substantiate their numbers. In fact, without a greater amount of information, we are not prepared to change our current view that the company can keep about 15% of the former ESRX scripts and cut about $200 million of expenses over a multi-year period. Most importantly, it is nearly the beginning of October and the contract expires on Dec 31, and there is no resolution in sight. A court has pushed the parties into arbitration to resolve a lawsuit ESRX filed against WAG, but it is unclear whether this process will address the entire disagreement about reimbursement rates or just the issues in the lawsuit. Meanwhile, we think customers are already changing pharmacies, now that many employers and health plans have sent out letters saying WAG would be out of the ESRX network effective Jan 1. There is no reason anyone needs to wait until year-end to switch stores, especially for new prescriptions. Even if the dispute is resolved, we expect lasting damage to WAG's customer relationships, and this will be compounded if the ESRX/Medco merger is completed."
"We are introducing a 1Q12 EPS estimate of $0.67 and lowering our FY12 estimate by $0.06 to $2.68 given our belief that the dispute with ESRX is already impacting results. Our FY12E EPS remains at $2.74."
For more ratings news on Walgreen click here and for the rating history of Walgreen click here.
Shares of Walgreen closed at $33.77 yesterday.
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