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In its concerted effort to meet the rising demand for vaccines in the ongoing flu season, Safeway Inc. (SWY - Analyst Report) supplied its U.S. pharmacies with an additional 200,000 doses of flu vaccines. These can now be administered to customers on site.

Based on the reported cases and data by Centers for Disease Control (CDC), this has been the worst flu season in a decade with 47 states recording widespread flu activity. According to CDC, the spread of flu increased across the U.S. by Jan 11, 2013. Considering that flu activity in the U.S. spikes usually in Jan or Feb, Safeway’s decision appears to be a rational and lucrative opportunity to garner incremental revenues.  

As per management, the shipment was necessary to meet the demand for flu vaccine stocks at one of the largest food and drug retailers in North America. Moreover, to stimulate demand and encourage consumers to take flu vaccines, Safeway is offering a 10% discount coupon on the next grocery purchase to every customer who receives a flu vaccine at Safeway Pharmacy.

Other Players

Other players providing flu shots such as Walgreens (WAG - Analyst Report) and CVS Caremark (CVS - Analyst Report) also stand to gain from this grueling flu season. Management at Walgreens asserts that the ongoing severe flu season should spread awareness and support customer win back after its seven month impasse with Express Scripts (ESRX - Analyst Report).

The acute rise in flu cases is a positive factor for these companies as they battle macroeconomic headwinds. However, the players need to maintain supply continuum to meet the surging demand for flu shots.

Our Recommendation

Despite positive driving events, headwinds such as margin pressure and a highly leveraged balance sheet are cause of concern. Moreover, macroeconomic conditions remain unyielding. We currently have a long-term Neutral recommendation on Safeway which carries a Zacks Rank #3 (Hold). CVS Caremark carries a Zacks Rank #2 (Buy).

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