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Shares of Walgreen Co. (WAG - Analyst Report) surged to a new 52-week high of $45.80 on Tuesday, Mar 19, 2013, following its second-quarter fiscal 2013 results. The stock inched up 5.44% (or $2.31) to close at $44.74, reflecting a solid year-to-date return of 21.7%.

The Stock Driver

Walgreens managed to recover from two successive challenging quarters, which helped the company post solid earnings in the second quarter of fiscal 2013. This better-than-expected performance triggered the bullish momentum of the stock. As reported earlier, Walgreens’ adjusted earnings per share shot up 9.1% to 96 cents per share, beating the Zacks Consensus Estimate by a penny.  

The company gained retail prescription market share as prescriptions filled at comparable stores during the second quarter improved 4.3% (versus decline of 4.8% in the first quarter). A possible explanation for this might be the new multi-year pharmacy network agreement with Express Scripts (ESRX - Analyst Report) announced in mid-Sep 2012, under which Express Scripts’ customers started filling prescriptions at Walgreens.

Another upside for Walgreens’ is the 10-year deal with AmerisourceBergen (ABC - Analyst Report), effective Sep 1, 2013, to improve its global pharmaceutical supply chain for branded as well as generic drugs. AmerisourceBergen will replace Walgreens’ current pharmaceutical distributor Cardinal Health (CAH - Analyst Report) as the existing contract is set to expire in Aug 2013. Following the announcement, shares of Cardinal plunged 8.19% (or $3.78) as it is set to lose one of its largest customers. On the contrary, AmerisourceBergen rose 3.65% (or $1.76) as its long-term agreement with Walgreens is expected to create a kingpin in the prescription drug purchasing space.

Walgreens is optimistic about the financial and operational benefits from the AmerisourceBergen deal for fiscal 2014 with margin expansion and bottom-line accretion. The company and Alliance Boots also have the right to purchase a minority stake (of 7%) in AmerisourceBergen, exercisable up to 23%.

Given this backdrop, things are looking good for Walgreens as its strategic initiatives are set to revive growth. Walgreens’ return to growth, though not robust, is realistic. In light of these facts, the estimate revision trend over the next few days is likely to reflect bullish sentiments on the company’s performance in the ongoing fiscal. Currently, the stock carries a Zacks Rank #3 (Hold).

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