Longs' Options Limited After Walgreen's Exit

Chances are, he warns, that Longs would see its performance deteriorate further if negotiations continue to drag on. Instead, he looks for Longs to sell itself to CVS-Caremark -- which has a proven track record of improving operations -- while Walgreen continues to enhance the productivity of the stores it already owns.

Currie has a buy recommendation on CVS, which he ranks as his top drugstore pick, and neutral ratings on both Walgreen and Longs.

Levenson has expressed caution about CVS, however. Late last month, when the credit markets first froze up, Levenson decided to study every retail stock she covered for signs of liquidity risks. Although most of those companies landed in her "no worries" category, CVS fell into a smaller group that caused "moderate concerns."

"Ever since Enron, retailers have been paying more attention to their liquidity and striving to build in some cushion in case access to the commercial paper market should evaporate," Levenson noted at the time. Still, "with CVS ... our concern is sparked by the high level of short-term debt, (which is) likely to go even higher at CVS if it prevails in its bid for Longs."

With Walgreen backing down, however, CVS avoided the bidding war that Levenson had feared.

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