Why Walgreen Might Not Be Worth the Investment

NEW YORK (TheStreet) -- Shares of Walgreen (WAG) have fallen 11% over the last month on  the news of its plan to purchase the remaining equity it doesn't already hold in Alliance Boots for $15.3 billion. It will not use this acquisition to move aboard and seek a tax inversion.

In addition, the company revised down its revenue guidance of the combined entity to an average of $128 billion and adjusted earnings per share of $4.43. This represents a 20% cut in its guidance. This sharp fall in the stock could make the company appealing at $61.1 per share, but its current valuation is still high compared to CVS Caremark (CVS) .

At $61, Walgreen shares are up over 6% for the year to date and up 25% over the last year. CVS shares, at around $79, are up 11% YTD and 35% for the past 52 weeks.

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Walgreen's decision not to leave the U.S could have saved $4 billion in taxes over the next five years, according to analysts. But the company's market cap has contracted by nearly $10 billion since the company's announcement, which suggests this decision to remain in the U.S was already priced into the company's stock.

In addition, Walgreen plans to repurchase $3 billion of its stocks by 2016 and pay a 34 cents quarterly dividend. These steps could boost the company's augmented dividend yield, which includes its divided yield and buyback yield (the company's shares repurchase program divided by its market capitalization) to roughly a 4% annual yield.

According to Walgreen CEO Gregory Wasson, the decision to remain in the U.S wasn't due to political pressure but to avoid additional risk from implementing the tax inversion including battling the U.S. Internal Revenue Service and paying back taxes.

The company has also undergone a shakeup, with CFO Wade Miquelon leaving the company and pharmacy chief Kermit Crawford retiring at year's end, reportedly because of a billion-dollar forecasting error in the company's Medicare-related business.

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The company is also behind CVS Caremark in offering in-store clinics to take advantage of the increased number of people seeking preventive care thanks to insurance coverage under the Affordable Care Act.

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