By Barry S. Cohen, Stock Traders Daily
Walgreen (WAG) has patched things up with pharmacy benefit manager Express Scripts (ESRX), but it appears the huge drugstore chain could pay dearly for the dust-up. It's estimated that Walgreen could permanently lose some 60% of its Express customers to CVS Caremark (CVS).
In fact, CVS management thinks the Walgreen-Express fiasco added 4 cents to its third-quarter EPS. In the quarter, CVS earnings were up 16% from a year earlier, beating analyst estimates. Because of the added business, the Rhode Island-based drugstore chain and pharmacy benefit manager, or PBM, raised its earnings estimate for the full year.
Those Walgreen customers who gravitated to CVS while the company and Express were engaged in a nine-month squabble over contract terms may be difficult to recapture. The loss in business could amount to some $4 billion annually and may account for the nearly six percent decline in Walgreen same store sales during October. Investors have taken note of Walgreen's issues, driving the stock down nearly 6% in the past month versus a 1% drop in the DJIA.
Express shares also have been under pressure. Even though the company reported a 21% jump in third-quarter earnings - thanks in part to this year's acquisition of rival Medco Solutions - Express reduced guidance for 2013, citing a tougher economic climate. The company can't be pleased that one of its largest customers, UnitedHealth (UNH), is bringing pharmacy benefits management in house. If you're wondering how to trade the companies mentioned in this article it would be a good idea to consult our real time trading reports.
With its stock price depressed, I think now may be a good time to grab some Express shares. The company is by far the biggest PBM in the United States and many analysts rate the stock a strong buy or a buy. In fact, before the earnings announcement, three investment firms all reiterated their outperform ratings on Express and had over $70 price targets - compared to Express's current stock price around $53 - thanks in great part to the $100 billion sales machine the company is expected to be in 2013.
Analysts also like another company in the PBM space, Catamaran (CTRX), which has rewarded shareholders with a 60%t gain in share price year to date. And even though the company's third-quarter earnings declined due to acquisition-related costs, Catamaran, like Express, raised its earnings forecast for the full year. For more information about stocks in this space, our real time trading reports help investors identify opportunities before they happen.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.