Walgreen's same store sales came in better than expected for August and I expect the quarter is now in the bag and then some. There is an overhang on Walgreens stock because Walgreens has not renewed their contract with Express Scripts. I believe their dispute with Express Scripts will be settled in time and there will be a nice pop in the stock when it happens.
I believe the Wall Street analysts have this wrong because of their short term orientation. In the short run the lack of an greement would hit Walgreens sales and earnings as they would lose the Express Scripts customers. Express Scripts has longer term contracts so the initial effect on their earnings would be small.
In the longer run this would destroy Express Scripts, as few would sign new contracts with Express Scripts if their customers cannot go to Walgreens. There is little differentiation between pharmacy benefit managers (PBM). A consumer does not care who their health insurance uses as PBM but they do care if they can fill their prescriptions at Walgreens. Do you know or care who your PBM is? Do you know the name of the pharmacy you use? Which would it hurt you more to lose?
Walgreens management has been the best in the business and I trust that they are simply using this advantage. In typical Wall Street fashion analysts are simply looking at the short term earnings effect this would have and ignoring that this negotiation is happening out of a position of strength for Walgreens. I remain long Walgreens.