satyr

The Long Case for McKesson

For the most part, a reasonable analysis. Check your facts on Rite Aid, though. The bankruptcy risk is extremely low, with no debt maturities in the near term and adequate cash flow to service the debt. Also, they just signed a new agreement with McKesson.

Rite Aid's Earnings to Reflect Larger Struggles

Well, there's nothing new here. I'm not saying that anything here is inaccurate, but it's a lot of cut and paste of information that is already baked into the stock. The real question with RAD is what happens next.

Every retailer has struggled in 2009, and will likely do so at least halfway into 2010. Keep in mind that RAD only needs to hold its ground in order to justify a higher valuation, which it may or may not be able to accomplish.

A very important fact that I don't see mentioned here is that Jean Coutu owns 1/3 of the stock. The family has stated clearly that if the current formula does not work, a sale of the West Coast stores would be appropriate. That would raise a significant amount of cash which could be used to pay down debt, as well as bolster the East Coast franchise, where they dominate all of the competition. If you look at what Long's was able to do with a chain of only 500 stores, it is not difficult to see a case here for significant value.

One more thing: being on someone's "bankruptcy list" never does a company's stock any favors. But, RAD should never have been on such lists. Inclusion was gratuitous and a way for various services to garner attention with their sky-is-falling prognostications. If you take a look at the debt maturities and cash flow, that becomes rather clear.

CVS Is in Good Health - Barron's

Looks like something rose to the surface for CVS, and it wasn't cream.

CVS Caremark Tumbles on Lost Business

You fail to mention that CVS is also being investigated. The details are not known, but there have been various allegations made with respect to anti-trust, information sharing between the two sides of the business, and other related issues that are perceived to be harmful to the consumer.

I have followed pharmacy rather closely since 2003 and have observed CVS/Tom Ryan and their approach to growth. On the one hand, I give him credit for being very aggressive and able to drive a hard bargain. They stole the Eckerd chain and also Caremark. On the other hand, he is just the kind of figure that you find embroiled in the ugliest of scenarios, whereby hubris causes one to lose sight of integrity and legal doctrine.

By chance, I have had the unwelcome opportunity to watch how CVS/Caremark operates from a customer's perspective over the past year as I have been assisting a family member who has coverage through an employer medical plan. Their inability to communicate internally is mind boggling. You can call them about an issue and if you talk to 5 people you will get 5 distinct answers, all of them in conflict. It is no wonder that they have lost clients.

All of this is not to say that the stock is a bad buy (or a good one). Ryan will pump hard to bring the stock price back. But, he'd better be careful. He made some fairly big promises that he now can't deliver. It would be interesting to know when it became apparent that these contracts would be lost. This company has been a Wall Street darling for a while, which is always a bad sign. Caveat emptor.

CVS Is in Good Health - Barron's

Not mentioned here is the fact that the feds are taking a hard look at the CVS/Caremark combination on complaints that the outcome has been anti-competitive. It seems unlikely that they would unwind the combination, but they could certainly cause some grief. A possible outcome is that they could be forced to build a firewall between the to parts of the organization, which would take from the "synergies", and limit the PBM's side from forcing customers to their captive pharmacy, as well as their ability to direct market to insurance customers who use competing retail outlets. It remains to be seen if this combination model will prove the most successful. If it does, I would expect that over time Walgreens will merge with ExpressScripts and Medco will purchase Rite Aid.

Drugstore Demand Shows No Sign of Slowing

One unknown at this time is how healthcare legislation will impact the pharmacy business. Margins are already thin on medicare reimbursements, which is one reason that many indendent pharmacies are going out of business - they often run negative margins because of the administrative work associated with these.

Medicaid is even worse, and some pharmacies have simply refused to fill the prescriptions in states where the reimbursement rates have become absurdly low. At the moment, there is a standoff in Delaware over this.

RAD will probably continue to right itself, but it will be a slow process. John Standley is a superb operator, and I think the elimination of weak stores, tighter control of spend, and gradual pay down of debt will result in a smaller, but more profitable chain.

As for the comments about WMT and their impact on the major pharmacy chains, I think the case is much overstated. They are inconveniently located and the shopping experience is brutal. Cash customers make up less than 10% of the base, and these are the only ones that might be attracted to a price-oriented model. The larger threat to retail pharmacy, aside from legislation, is the push toward mail-order.

Same-Store Sales: Drugstores, Supermarkets, Fast Food Weathering Recession

The 11% gain reported for WAG is incorrect. That is the total sales increase, not same-store sales. The correct figure is 5.7%