(WAG) Walgreen in Elite League

Recently, Walgreen (WAG) was ranked 29th among the top 30 technology innovators in the U.S, according to the 2011 Information Week 500. The company added another feather in its cap when it became the top-ranked company in the retail and general merchandising category. The company considers both the achievements as huge recognition for its innovative technology in healthcare industry given the company secured a place in the top 30 list (in 2010 it was ranked 153 and secured the 3rd position among retail and general merchandising).

Walgreen’s IT division is presently developing Walgreens 2.0, which will likely enhance its technology infrastructure across multiple platforms, including its network of more than 7,700 stores.

Walgreen has been impacted over the past few quarters by high unemployment levels and lower discretionary spending. Moreover, the company remains challenged due to increased competition from major players like CVS Caremark (CVS).

In addition, Walgreen decided not to renew its agreement with Express Scripts (ESRX) as it considered the terms to be unfavorable. With this move, effective January 1, 2012, Walgreen’s 7,700 pharmacies will not be a part of Express Scripts’ pharmacy provider network.

Walgreen estimates that Express Scripts, as a pharmacy benefits manager, processes 90 million prescriptions that are not expected to be filled by Walgreen in fiscal 2011, representing approximately $5.3 billion in annual sales. Hence, we believe the decision not to renew the contract will affect the company’s future growth.

However, Walgreen is working toward establishing itself as a leading provider of pharmacy, and health and wellness solutions. The company has been taking steps over the last few years to align its assets These include the acquisition of Cardinal Health’s (CAH) Specialty Pharmacy business and agreement with Omnicare to divest its long-term care pharmacy business in exchange of the latter’s home infusion business.

Thereafter, during the third quarter of fiscal 2011, Walgreen sold its Pharmacy Benefit Management business to Catalyst Health (CHSI) for $525 million. By divesting its non-core assets, Walgreen will be able to better focus on its drug stores. On the other hand, the company acquired online retailer drugstore.com to gain a strong foothold in the online arena as it will be able to access more than 3 million online customers.

Moreover, the company has made satisfactory progress in the Customer Centric Retailing (CCR) rollout and in meeting the targeted savings under the rewiring initiative. The benefits from these initiatives will be realized over a period of time. Leveraging on its strong cash balance, the company has rewarded its shareholders and is also well equipped to pursue suitable acquisitions going forward.

Currently we have a ‘Neutral’ recommendation on the stock.

CARDINAL HEALTH (CAH): Free Stock Analysis Report

CATALYST HEALTH (CHSI): Free Stock Analysis Report

CVS CAREMARK CP (CVS): Free Stock Analysis Report

EXPRESS SCRIPTS (ESRX): Free Stock Analysis Report

WALGREEN CO (WAG): Free Stock Analysis Report

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