The Week in Stocks: Wal-Mart Shakes the Drugstore Industry
Plus, Tribune eyes a breakup, FedEx delivers strong quarter, and more.
Wal-Mart (WMT) shook the drugstore industry Thursday when it announced that it would soon lower the prices of nearly 300 generic drugs to $4 for employees and consumers in the state of Florida. While the initial test is limited to about 15% of the available generic drugs, Morningstar analyst Mitchell Corwin thinks it's likely that Wal-Mart will eventually broaden the program to cover more generics and nationalize it. In Corwin's view, the impact of Wal-Mart undercutting drugstores on the prices of generic drugs could be severe. The large drugstore chains, such as Walgreen (WAG) and CVS (CVS), derive well over 60% of sales from prescription drugs, and generics are poised to climb to two thirds of the prescription mix in the next few years. What's more, generics are generally more profitable for the chains. Thus, the mix change was expected to drive increased profitability. If Wal-Mart succeeds, Corwin believes it will change the dynamics of the industry and seriously damage the retail drugstore business model. As such, Corwin is hiking Walgreen's risk-rating and will likely adjust his fair value estimates as more information comes to light regarding Wal-Mart's long-term plan and how the drugstore chains intend to defend themselves against the threat it poses.
Full Analyst Report: Wal-Mart
Full Analyst Report: Walgreen
Full Analyst Report: CVS
Full Analyst Report: Rite Aid
Tribune Weighs Its Strategic Alternatives
Morningstar analyst James Walden weighs in on Tribune (TRB) management's recent move to explore strategic alternatives for the media company. Those alternatives range from selling off the company's broadcasting assets or even pursuing a management-led buyout. While no outcome is certain, Walden anticipates that some meaningful transaction will take place. He views this as a net-positive, as a transaction could unlock tremendous value for shareholders. Though Walden is leaving his fair value estimate unchanged, he'll make any necessary revisions as developments warrant.
Full Analyst Report: Tribune
Jeffrey Ptak does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.