The stock is up over 50% and investors are paying a premium PE of 21.4 for its earnings, or 61 cents in equity for each dollar in sales. By contrast, they pay just 53 cents for each dollar of Wal-Mart (WMT) sales, and 45 cents for each dollar of CVS (CVS) sales.
What's going on? Walgreen is bidding to win health reform.
The American Medical Association has been concerned about the expansion of the company's Take Care Clinics at its Walgreens stores for years, claiming it's an inherent conflict of interest to both prescribe and dispense drugs. But it's really about cutting doctors out of the loop on some of their most lucrative business.One of the biggest is handling chronic conditions. I have a family history of hypertension and visit my doctor for a half-hour twice a year. He takes my blood pressure, he takes some blood and probably makes $1,000/year off me, most of which comes from my insurance company. Nothing he's doing can't otherwise be done by data and a good nurse. While I like my doctor, I know it's a luxury service.
Walgreens announced last week its clinics will now handle this kind of treatment. The American Academy of Family Physicians opposes this but as a recent U.S. Senate report showed, 57 million Americans already lack access to primary care doctors, and the shortage is only going to grow. Walgreens can handle more work through a combination of nurses, physicians assistants and data. Doctors become second-line resources, handling only the more difficult questions the clinics aren't qualified to answer. Walgreens' pharmacy records have expanded through its clinics into sophisticated electronic health records. In addition to its roughly 350 in-store clinics, it has 350 clinics at corporate work sites as well as a program linking hospital patients to the clinics, as Kaiser Health News notes. This has been a serious problem for years. A study in the American Journal of Managed Care concluded two years ago that clinics can provide equivalent care to a doctor's office for 30%-40% less, and 80% less than an emergency room, which is where many uninsured patients now go.
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