The CVS drugstore chain could pick up $1.1 billion in annual sales because of Walgreen's tiff with Express Scripts, a Credit Suisse analyst says, while Rite Aid could get $380 million.
A contract between Walgreen Co. and Express Scripts Inc. will expire Dec. 31 and has not been renewed. Express Scripts is one of the largest pharmacy benefits managers in the U.S. Walgreen has said it gets $5.3 billion in revenue from the current contract.
Analyst Edward Kelly on Wednesday raised shares of Rite Aid Corp. to "Outperform" from "Neutral" and downgraded Walgreen shares to "Neutral" from "Outperform."
Rite Aid, which has posted annual losses for four straight years, had about $25.21 billion in revenue in its latest fiscal year. Kelly said $380 million in additional revenue would boost Rite Aid's income by $50 million to $60 million. CVS reported $57.35 billion in pharmacy sales, and Kelly its profit would rise by about 3 percent, or 9 cents per share, if it picked up $1.1 billion in revenue from Walgreen.
Rite Aid shares rose 5 cents, or 4 percent, to $1.18 as the broader markets slumped in afternoon trading. Walgreen shares fell $1.05, or 3.2 percent, to $31.91. CVS Caremark Corp. stock lost 48 cents to $38.56. Express Scripts dropped $1.15, or 2.4 percent, to $47.17.
Walgreen announced in June that it would stop filling most prescriptions for Express Scripts members at the end of their current contract. Walgreen said Express Scripts is not paying it enough to fill prescriptions, and Express Scripts says Walgreen wants too much money.
Still, Walgreen said earlier this month that it expects to keep between 97 and 99 percent of its 2011 prescription volume without Express Scripts.
But Kelly said he believes Walgreen will lose 90 to 95 percent of its Express Scripts business in 2012. That's 79 million prescriptions — $4.8 billion in pharmacy revenue — as well as $225 million in nonpharmacy sales and $300 million to $350 million in pharmacy labor cost savings.
Walgreen Co. did not immediately respond to a request for comment.
Kelly now expects Walgreen to earn $2.65 per share in fiscal 2012, which ends in August, down from a previous estimate of $3.05 per share. According to FactSet, analysts currently expect a profit of $2.85 per share.
Kelly's estimates do not account for Express Scripts' possible acquisition of Medco Health Solutions Inc., one of its biggest competitors. Walgreen has not commented on the potential effects of that deal, which has not yet been approved by regulators. The deal would boost Express Scripts' bargaining power by doubling its market share. Walgreen would then have to choose between negotiating a new deal with a bigger Express Scripts, and eventually losing Medco's member as well.