Walgreen's Is A Deal

On Wednesday, there were rumors of an Express Scripts deal with Walgreen's and Walgreen's surged.The stock is continuing higher today. While there has been no confirmation of a deal there has been no denial either.

Walgreen's is an important position for me as I own both stock and calls. There has been relentless selling in the stock as it has absorbed brokerage downgrade after downgrade. A former bull called the stock uninvestable. I find that statement incomprehensible. In a worst case scenario where Walgreen's does not make amends with Express Scripts the company should earn $2.75 next year. Trading at twelve times a worst case scenario and a nearly 3% dividend seems very investable to me.

A deal makes sense for both Express Scripts and Walgreen's and I believe this is the most likely outcome. Walgreen's is the most successful pharmacy in the US and Express Scripts is the most successful PBM. They did not become that way by cutting their noses off to spite their face. I still see a deal as the most likely outcome, but even without a deal Walgreen's has a margin of safety.

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