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Walgreen (NYSE:WAG) jumped bout 11% yesterday on the news that it ended its dispute with Express Scripts (NASDAQ:ESRX).

If you remember, Walgreen was a bad news pick based on the price drop after the Express Scripts break-up and Alliance Boots acquisition. Although Walgreen did not show up on the BWB 7 Screen, it has a history of strong financials and desirable intrinsic properties.

Yesterday's response by Mr. Market was nice to see, but long term Walgreen investors are not out of the woods yet. As reported in the Q3 results,

Compared to the prior year, the strategic decision to no longer be part of Express Scripts Pharmacy Network as of January 1, 2012 impacted our quarterly results by a net $0.06 per diluted share including cost controls, at a total of $0.15 per diluted share year-to-date.

Not only prescription transactions were down (10% in June alone), but revenues on same store sales suffered also (down 4.9% vs Q2 2012) because those customers were not in the store to shop while they waited for that prescription to be filled.

The question to be answered now is, how many of those lost customers will come back to Walgreen for their prescriptions? CVS Caremark (NYSE:CVS), which benefited from the dispute as an alternate supplier for Express Scripts, expects to retain about 50% of its new customers gained from Walgreen. Customers will return and some will be lost, this is the nature of retail. More importantly, the opportunity for new customers has grown with the return of the Express Scripts subscriber network.

Revenues will return, but not quickly. I expect the remainder of the year's sales will still be affected by the dispute. Management expected a total loss of $0.21 per share for the year because the loss of the contract. It will be worth watching the Q4 results and seeing what management attributes to the loss. Based on the numbers they have put out thus far, I would expect to see $0.06 or less tied to the Express Scripts contract dispute.

As for Mr. Market, I expect him to be a little hungover today. Look for the profit takers to exit and the price to drop a little as details emerge on the settlement. Now that the dispute is over with Express Scripts, the growth potential has returned to the domestic market.

I still consider Walgreen a long position that will reach its Fair Value price of $45.00 or more based on my ealier evaluation.

Source: Walgreen Not Out Of The Woods Yet