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  • henleywm henleywm Sep 12, 2013 12:06 PM Flag

    lumpen thinks you should not buy WAG

    because CVS is across the street and WMT sells rx's for $4. Why would we care about CVS and their low margin PBM business? They are a competitive retailer, but WAG outsells them at most locations. Why would we want to own a company like WMT who gives away drugs? WAG makes a reasonable margin on the drug business, and dispenses far more prescriptions than WMT. From an investors point of view why would he bring up the $4 generic program? WAG is poised to double their revenues over the next 5 years, while maintaining attractive margins. Also, consider the Amerisource deal. Not only will it improve Walgreens buying power, further enhancing margins, the deal also gives WAG a remarkable opportunity to integrate vertically into the wholesale business at a substantial discount. WAG and Boots (which Walgreens will own in full in 2015) were granted an option to buy 8% of Amerisource in March 2015 @$51.50/share, and another 8% in March 2016 at $52.50 per share. The current price for Amerisource shares (ABC) is $61.50. That amounts to more than a $300million discount on the shares based on todays valuation of ABC. As they begin to report the huge increase in revenues and profits that will begin this fall, selling drugs to 8500 Walgreen locations, the value of those options will rocket higher. Counting the 7% of ABC being bought on the open market and ABC's stock buyback program, WAG could own 25% of the wholesaler in 3 years. All this, while they expand internationally through Jakks Booots Alliance, a fully integrated wholesale and retail powerhouse in Europe with an additional stake in Chinese and Turkish drug wholesalers. You can begin to appreciate why Goldman/Sachs has given WAG a "conviction buy" rating. All this aside, I recommend lumpen short WAG now. It would be similar to riding the "iron horse", delivering excruciating pain on the way to certain death.

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