Reading the Tea Leaves at Walgreens

Walgreens is being unfairly clobbered as a result of its bare miss on the market. But, what does this mean for the drug industry?

Walgreen's stock has been taken to the cleaners this week. While quarterly revenue rose by more than 10 percent to $13.4 billion, the company's profit slid by 4% year over year to $396.5 million or 40 cents per share. Analysts who had expected earnings over 47 cents a share and revenue of $13.5 billion let the company have it.

The company improved its top line greatly but missed on the bottom line as a result of the growing use of simvastatin, a generic version of the popular cholesterol-lowering drug Zocor. From looking at Walgreen's report, it is clear that reimbursement rates from insurance plans have fallen since the generic medication came on the market last summer. It is also clear that Walgreen's filled three times the number of simvastatin prescriptions during the fourth quarter as it did during the same period last year but made the same amount of money selling the drug.

I think Walgreen's is buy here at 39 on valuation alone at less than 20x current earnings. But, this has me wondering whether I should sell my stock in Pfizer, Merck, Schering and Astra given that these companies derive so much of their revenue from cholestorol lowering drugs. 

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Comments

  • maybe

    October 04, 2007

    How about the generic/Wallmart $4/drug scheme?

    Wal-Mart offers low-cost generic drugs in Illinois, other states
    Wal-Mart Stores Inc. is expanding a program offering $4 prescriptions for some generic drugs to 14 more states, including Illinois, two weeks after rolling out the low-cost program in Florida, the world's ...

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