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WAG
Old 05-19-2008, 11:51 AM   #1
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WAG

How has Walgreens managed to screw up so badly? The chart on CVS looks as I would expect an industry heading into into its boom market should look, while WAG continues to sink.
With this huge influx of senior citizens on the horizon, pharmacy stocks should be rocketing toward the future, in my opinion.
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Old 05-19-2008, 03:35 PM   #2
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I don't think Walgreens is going to do all that well when Walmart and Target keep expanding their low-cost prescriptions.

This just seems like a business that is going to lose to the other competition out there.


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How has Walgreens managed to screw up so badly? The chart on CVS looks as I would expect an industry heading into into its boom market should look, while WAG continues to sink.
With this huge influx of senior citizens on the horizon, pharmacy stocks should be rocketing toward the future, in my opinion.
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Old 05-19-2008, 04:04 PM   #3
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Walgreen debacle
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Old 05-19-2008, 04:18 PM   #4
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I don't think Walgreens is going to do all that well when Walmart and Target keep expanding their low-cost prescriptions.

This just seems like a business that is going to lose to the other competition out there.

I would much rather zip into a Walgreens than to face the mass hysteria that is Walmart. I love Walgreens, I've bought everything from the spousal's anniversary gift to a Magic Bullet there.
Even though they are growing rapidly, the facts are, they need to. I know I can't believe how often I have need to go to the pharmacy, and there are millions more baby boomers right behind me. I'm hoping it is just a temporary phase.
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Old 05-19-2008, 10:26 PM   #5
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I tend to disagree with the idea that WAG is broke. I worked in their real estate planning division and got an inside glimpse of their ops.

A few things make me nervous but overally I still have a lot of respect for WAG's ability to operate. Problems or concerns would be: a) the locations don't seem to be quite as prime on average (no direct turn lanes from heavy traffic roads is one ex I have seen more of as of late) b) nervous about their leap into health clinics - gotta hire NPs to man those ships c) cost of health care professionals as the demand for their services increases d) acquisitions as of late - historically WAG has been very against this and has always favored organic growth e) last report had kind of weak front-end sales IMO and I noticed CVS had stronger f-e sales; that's where the profits are.

Trends in their favor: a) convenience always sells and scripts get your arse in the store b) generics tailwinds favor their pharm sales - apprx 70% of their biz c) weak yoy comps - yr before last they were up against a blockbuster generic rollout d) competitor tech used in their pharm is far behind WAG's e) financially strong, well capitalized and it is kind of in their culture to avoid debt or hold very little of it; they can finance their own growth

Not too worried about Walworts price announcements. Some of those claims are very misleading - for ex., "we now offer 10 drugs for $5" but those 10 could be 2 drugs with 5 different dosage strengths. I think it is Walworts desperate attempt to capture a biz will a strong future.

Personally, I can't imagine seniors entering the Walwort super mega circus stores for their scripts and poor service. When I was there we had a strong senior customer base and they often bought f-e products during their stops. Something about those coupons....

Overall, the only company I have worked for and still respect. But I suppose the WAG thesis depends on your time horizon - short-timers need not apply.
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Old 05-20-2008, 07:29 AM   #6
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I would much rather zip into a Walgreens than to face the mass hysteria that is Walmart.
Maybe the mass hysteria exist in some markets but that is not the case where I live. Even it that was the case, I can put up with a little inconvenience for a $4 generic prescription.
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Old 05-20-2008, 07:40 AM   #7
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A few things make me nervous but overally I still have a lot of respect for WAG's ability to operate. Problems or concerns would be: a) the locations don't seem to be quite as prime on average (no direct turn lanes from heavy traffic roads is one ex I have seen more of as of late)
That is a very accurate description of the one in my small town. A new one built in an old neighborhood/business district. Not a heavily traveled road. I don't know what hey were thinking in locating there.
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Old 05-20-2008, 06:13 PM   #8
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See a significant crimp in WAGs operations moving forward. These $4.00 & even FREE Rx's are a real & viable threat to their bottom-line. My wife for example uses Metformin to control her blood sugar levels. WAG charges $10.00, WMT $4.00. We recently started shoppping in WMT & Sam's.

Lipitor, the #1 selling drug in the world comes off patent I believe in two years. WMT I'm guessing will quickly move this mega-hit into the $4.00 category. WAG will be forced to match this price. With gas prices now a major consideration when shopping, WMT offers a vast array of products from gardening to food to Rxs. People will shop where it's cheap & convenient.

CVS recently bought Caremark to further diversify their business model. WAG continues to embrace a strategy that worked magnificently in the past, but what about the future?

Saying all this, I still own a small position in WAG. I sell calls to generate income from this security mired in recent years in the throws of mediocrity. Management really has to move forward with some bold & creative initiatives. I for one am not holding out much hope that this will happen.

Best of luck!
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Old 05-20-2008, 06:19 PM   #9
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The competition isn't specifically Walmart. People can get their prescriptions at Walmart, Target, Cub, etc. It will usually be cheaper and they are probably at one of those places anyway.

Walgreens does have convenience going for them. That may be enough, but I wouldn't put money on it.

My wife goes to Walgreens a fair amount shopping the sales and stuff. She gets her prescriptions at Cub though. Of course, we live less than half a mile from Cub, so she may just be picking the closest place.

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Not too worried about Walworts price announcements. Some of those claims are very misleading - for ex., "we now offer 10 drugs for $5" but those 10 could be 2 drugs with 5 different dosage strengths. I think it is Walworts desperate attempt to capture a biz will a strong future.

Personally, I can't imagine seniors entering the Walwort super mega circus stores for their scripts and poor service. When I was there we had a strong senior customer base and they often bought f-e products during their stops. Something about those coupons....

Overall, the only company I have worked for and still respect. But I suppose the WAG thesis depends on your time horizon - short-timers need not apply.
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Old 05-20-2008, 11:09 PM   #10
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I've been to walgreens twice. The first time was when it was late and my wife and I needed some stuff for some things. The second time was travelling on Christmas day and needing snacks for the trip.
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Old 05-21-2008, 07:18 PM   #11
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See a significant crimp in WAGs operations moving forward. These $4.00 & even FREE Rx's are a real & viable threat to their bottom-line. My wife for example uses Metformin to control her blood sugar levels. WAG charges $10.00, WMT $4.00. We recently started shoppping in WMT & Sam's.

Lipitor, the #1 selling drug in the world comes off patent I believe in two years. WMT I'm guessing will quickly move this mega-hit into the $4.00 category. WAG will be forced to match this price. With gas prices now a major consideration when shopping, WMT offers a vast array of products from gardening to food to Rxs. People will shop where it's cheap & convenient.

CVS recently bought Caremark to further diversify their business model. WAG continues to embrace a strategy that worked magnificently in the past, but what about the future?

Saying all this, I still own a small position in WAG. I sell calls to generate income from this security mired in recent years in the throws of mediocrity. Management really has to move forward with some bold & creative initiatives. I for one am not holding out much hope that this will happen.

Best of luck!
FMH
Ahhhh I wouldn't say the show is over. Despite our perceptions, the retail pharm market is still controlled by small regionals/independents so there is still retail business to be gained in that area.

They are diversifying (clinics, corp pharmacies) - the question I ask is whether or not they are diversifying in the right area? Can the earn a good enough ROIC to make it worthwhile?

One more - has Walwort always had lower prices than WAG or are they just now advertising it? Are these cuts permanent or just a "come here" now and once we have you we can adjust prices? Retailers know there are switching costs involved in consumer behavior.

Dawg - Don't know about that location. Wouldn't have happened on my clock
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Old 05-22-2008, 09:00 AM   #12
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Another name worth discussing is RAD. I know they've been the ugly step child and gotten spanked back in '99, but is this cheap stock undervalued, or merely cheap?
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Old 05-23-2008, 11:25 AM   #13
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A CEO's primary mission is to grow shareholder value. Take a look at WAG vs CVS for the past five years. Helen Keller could see which company is accomplishing their goal.

WAG: Basic Chart for WALGREEN CO - Yahoo! Finance
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Old 05-23-2008, 12:07 PM   #14
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Personally, I can't imagine seniors entering the Walwort super mega circus stores for their scripts and poor service.
Hmmmm..... Don't have a clue as to which Walmart store you would go to for drugs, but the one down the street from my house offers good service at the pharmacy. It is a longer walk in from the parking lot however. I can choose between Walgreens, CVS and Walmart (all within a mile of the house) and generally go with the lowest price. None of the three offer any convenience, ambience or amenity worth paying a penny extra for. The CVS does offer 24 x 7 pharmacists on duty so I keep their phone number in my wallet in case I'm in a situation where I need to provide a physician a pharmacy number for a call-in prescription at an odd hour.

My maintenance drugs are all mail order, so the above comments apply only to occassional one-time prescriptions.
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Old 05-23-2008, 07:22 PM   #15
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A CEO's primary mission is to grow shareholder value. Take a look at WAG vs CVS for the past five years. Helen Keller could see which company is accomplishing their goal.

WAG: Basic Chart for WALGREEN CO - Yahoo! Finance


CVS Caremark Corp (CVS) - Stock chart, Index chart - MSN Money - go to 1990 customize and add WAG to the compare tab

Add higher ROE with less leverage, higher ROIC, etc. So what measure are you using in your small sample bro?
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Old 05-23-2008, 07:53 PM   #16
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Youbet, you bring up a very cogent point. Most of the folks filling RXs in WMT are actually seniors. While the envoirnment may be somewhat spartan, the prices are rock bottom with service comparable to all major chains. Watch for WMT to take a leadership position in this sector within the next few years.

With WMT actively involved, margin pressure on competitors is inevitable. CVS knew exactly what they were doing acquiring Caremark. Low-priced generics coupled with mail order will be the business model of many retailers moving forward.

If you have the chance & inclination, listen to the CCs from senior management of these companies. It'll be self evident why some stock prices are motoring upward & others are losing ground.

In any event, best of luck & stay well!
FMH
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Old 05-23-2008, 10:56 PM   #17
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While the envoirnment may be somewhat spartan, the prices are rock bottom with service comparable to all major chains.
I don't go to Walmart for merchandise very often but will admit that when the pharmacist tells me it will be 15 mins until my order is ready, it's easy to occupy yourself for a few minutes by wandering around the store. Last time I walked back to the auto parts area and picked up new wiper blades for my truck.

The local Walgreens and CVS stores do offer a drive-in window which could be really handy if you're not feeling well and don't want to do that long walk in from the Wallmart parking lot.'

But, in the end, most of the time price is king with prescription drugs.
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Old 05-24-2008, 08:53 AM   #18
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A) If price is king, I can't understand why margins have been so stable for WAG's business in the past. Maybe it will change, maybe not.

B) Maybe their goal is not compete directly with Walwort. Maybe they would rather continue eating mkt share away from the market leaders - indies and small, regionals.

C) They do have a mail order script biz. They are trying to grow the division organically rather than buy their way into it. However, I don't think they intend on making the mail order their bread n' butter.

When it comes to trying to figure out what will happen to this business I guess I try to focus on what the average consumer will do. Everyone here says it is all about price. I think most people here are a different breed and do not represent the general population.
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Old 05-24-2008, 08:16 PM   #19
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CVS, Walgreens and many of the regional chains are all variety stores with a pharmacy. What is Walgreens' distinctive competency in this game that will allow them to grow profits and shareholder value vs the others? If we wind up with a nationalized health insurance system where Washington has a lot of clout with drug makers and retailers, is Walgreens uniquely situated to deal with that and prosper vs the others?

I only joined in this conversation speaking as a customer. I don't own and have never looked closely at the stocks of retailers. I only have my point of view that Walgreens has little differentiation from their competitors.
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Old 05-24-2008, 09:04 PM   #20
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Lipitor, the #1 selling drug in the world comes off patent I believe in two years. WMT I'm guessing will quickly move this mega-hit into the $4.00 category. WAG will be forced to match this price. FMH
Don't count on it. Simvastatin (generic Zocor) still isn't on their $4 list and it has been generic for a year(?). I can get it at Costco (the lowest price for prescriptions overall, according to Consumer Reports) for <$9.00 per 100.
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