Shares of Walgreen Co. (WAG) touched a new 52-week high of $50.50 on Wednesday, May 15, 2013 following strong annual results of Alliance Boots GmbH. Walgreens has a 45% equity ownership stake in the European pharmacy-led, health and wellbeing retailer Alliance Boots. The closing price of $50.03 of the largest drug store chain in the U.S. represents a solid year-to-date return of 32.1%.
The Stock Driver
On Wednesday, Alliance Boots reported its annual results for the year ended Mar 31, 2013. The 12.7% rise in Alliance Boots’ underlying profit was seen to boost market sentiments for its minority stakeholder Walgreens as the stock rose 0.89% during Wednesday.
As per management at Alliance Boots, the companies are progressing in a timely manner for the joint synergy program. Walgreens is on track to attain synergies across joint operations to be between $100–$150 million in the first year and $1 billion by the end of 2016. The company expects the Alliance Boots deal to be accretive to its adjusted EPS by 18–22 cents in fiscal 2013.
Nonetheless, the announcement from across the Atlantic is not the only upside for Walgreens. Of late, the company looks to be in an upturn following a string of strategic maneuvers. Earlier this week, Walgreens extended its agreement as a network pharmacy provider in the CVS Caremark (CVS) pharmacy benefit management (PBM) retail network. The deal provided some positive momentum to the stock.
In March, Walgreens and Alliance Boots inked a 10-year deal with AmerisourceBergen Corporation (ABC), effective Sep 1, 2013, to improve global pharmaceutical supply chain for branded as well as generic drugs. AmerisourceBergen will replace Walgreens’ current pharmaceutical distributor Cardinal Health (CAH) as the existing contract is set to expire in Aug 2013. The company and Alliance Boots also have the right to purchase a minority stake (of 7%) in AmerisourceBergen, exercisable up to 23%.
Given Walgreens’ recent efforts that boost its growth prospects, the stock received a series of positive estimate revision. However, lingering bearish sentiments, reflected in a few downward estimate revisions, weigh on the stock. The stock carries a Zacks Rank #3 (Hold). While we remain on the sidelines for Walgreens, CVS Caremark, carrying a Zacks Rank #2 (Buy) warrants a look.
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