Walgreen (WAG), the US Department of Health and Human Services (HHS), the Centers for Disease Control and Prevention (CDC) and the Centers for Medicare and Medicaid Services (CMS) have teamed up in a campaign called Million Hearts Initiative in order to prevent 1 million heart attacks and strokes over 5 years.
The consortium that claims heart disease and stroke to be the first and third major causes of death, aims at a coordinated approach to promote the quality of treatment and reduce the associated risk factors.
In order to support the campaign, Walgreen decides to involve over 26,000 of its pharmacists or Take Care Health providers who will offer free blood pressure testing and consultation. Walgreen also plans to promote diabetes health testing in November and heart health in February and make Million Hearts resources available at its 7,760 drugstores across the nation. The company believes that this public and private sector initiative will provide a broader scope to drive positive health outcomes through direct interactions with patients, which in turn will boost revenues.
Walgreen has been impacted over the past few quarters by high unemployment levels and lower discretionary spending. Also, it faces the headwinds of increased competition from major players like CVS Caremark (CVS) and Rite Aid Corporation (RAD).
In addition, Walgreen decided not to renew its agreement with Express Scripts (ESRX) as it considered the terms to be unfavorable. With this move, effective January 1, 2012, Walgreen’s 7,700 pharmacies will not be a part of Express Scripts’ pharmacy provider network.
Walgreen estimates that Express Scripts, as a pharmacy benefits manager, processes 90 million prescriptions that are not expected to be filled by Walgreen in fiscal 2011, representing approximately $5.3 billion in annual sales. Thus, we believe the decision not to renew the contract will affect the company’s future growth.
However, Walgreen is working toward establishing itself as a leading provider of pharmacy, and health and wellness solutions. The company has been taking steps over the last few years to align its assets. We are encouraged by Walgreen’s recent strategic decisions, including the sale of the PBM business and the acquisition of drugstore.com.
Moreover, the company has made satisfactory progress with respect to the Customer Centric Retailing (CCR) rollout and in meeting the targeted savings under the rewiring initiative. The benefits from these initiatives will be realized over a period of time. Leveraging on its strong cash balance, the company has rewarded its shareholders and is also well equipped to pursue suitable acquisitions going forward.
Currently we have a ‘Neutral’ recommendation on the stock.
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