Walgreen (WAG) May Deliver for Investors with Alliance Boots, Expanded Services - Barron's
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Walgreen (NYSE: WAG) has followed its peers into offering more than just medications. Customers can often times find food, electronic equipment, and other sundries with just a quick walk around. Barron's thinks this, as well as Walgreen's move to transform into a health-care store that also sees patients, as key reasons why investors might want to take a good second look at the retail pharma giant.
Barron's cites two key reasons why Walgreen will continue seeing growth over the next two years, amid shares trading at annual highs currently. One is the Company's exposure with Alliance Boots. Swiss-based Alliance plans to move beyond Europe into markets like Russia and Asia.
Also is Walgreen getting back some of the U.S. prescription customers lost in 2012 during its spat with Express Scripts (Nasdaq: ESRX). The new contract with Express Scripts gives Walgreen access to a vast network of insured patients.
Walgreen has also tempered store openings, focusing instead on growing a more robust presence in the communities it operates. One feature hitting many stores is Take Care clinics, which offer nursing services alongside pharmacy services.
With Boots, Walgreen is aiming for about $1 billion in global synergies through 2016. After investing $6.7 billion for a stake in Boots last year, Walgreen has the option, but not obligation, to purchase the rest of the company within three years. Boots, which currently runs 3,300 stores in 25 countries, recently disclosed plans to capture double-digit profit growth over the next few years, a potential catalyst for Walgreen to acquire all of the company (though it will need shareholder approval first).
Shares of Walgreen are currently trading at 12.7 times fiscal 2013 earnings and 11.3 times fiscal 2014 earnings. Those compare with its historical valuation of 13 to 14 times earnings. Following Boots announcement last week, some have put a 12-month price target of $45 on Walgreen.
Risks include recent government pressure on drug reimbursements, particularly with Medicaid patients, and the recovery from the Express Scripts fallout, which may take longer than expected to regain customers losses.
Those willing to wait will be rewarded with a 2.7 yield dividend. Should Walgreen find its stride early, the planned expansion with Boots and store re-imaging could be just the right medication for a sick portfolio.
Barron's cites two key reasons why Walgreen will continue seeing growth over the next two years, amid shares trading at annual highs currently. One is the Company's exposure with Alliance Boots. Swiss-based Alliance plans to move beyond Europe into markets like Russia and Asia.
Also is Walgreen getting back some of the U.S. prescription customers lost in 2012 during its spat with Express Scripts (Nasdaq: ESRX). The new contract with Express Scripts gives Walgreen access to a vast network of insured patients.
Walgreen has also tempered store openings, focusing instead on growing a more robust presence in the communities it operates. One feature hitting many stores is Take Care clinics, which offer nursing services alongside pharmacy services.
With Boots, Walgreen is aiming for about $1 billion in global synergies through 2016. After investing $6.7 billion for a stake in Boots last year, Walgreen has the option, but not obligation, to purchase the rest of the company within three years. Boots, which currently runs 3,300 stores in 25 countries, recently disclosed plans to capture double-digit profit growth over the next few years, a potential catalyst for Walgreen to acquire all of the company (though it will need shareholder approval first).
Shares of Walgreen are currently trading at 12.7 times fiscal 2013 earnings and 11.3 times fiscal 2014 earnings. Those compare with its historical valuation of 13 to 14 times earnings. Following Boots announcement last week, some have put a 12-month price target of $45 on Walgreen.
Risks include recent government pressure on drug reimbursements, particularly with Medicaid patients, and the recovery from the Express Scripts fallout, which may take longer than expected to regain customers losses.
Those willing to wait will be rewarded with a 2.7 yield dividend. Should Walgreen find its stride early, the planned expansion with Boots and store re-imaging could be just the right medication for a sick portfolio.
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