Stock prices for the nation's three largest drug chains are on a tear.

Walgreens, Rite Aid, CVS Caremark, stock prices, share price, drug chains, John Standley, Alliance Boots, Express Scripts, AmerisourceBergen, PBM, prescription business, retail drug store, Affordable Care Act, drug segment, S&P Capital IQ, drug retail, S&P Composite 1500 GICS Sector Scorecard

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Bull market for drug chain stocks

April 23rd, 2013

NEW YORK – Stock prices for the nation's three largest drug chains are on a tear.

Walgreen Co., CVS Caremark Corp. and Rite Aid Corp. shares all reached new 52-week highs as of mid-morning trading on Tuesday.

Rite Aid shares ranged from $2.44 to $2.52 on Tuesday, with the latter marking the drug chain's peak for the past 52 weeks. During that time span, the low for the company's stock was 95 cents per share. For the year to date, the shares are up almost 80%.

The Camp Hill, Pa.-based drug chain saw its share price top the $2 mark earlier this month after it reported its first fiscal-year profit in six years and posted its second straight quarter of net income. In recent years, the company's stock has fallen below the $1 mark and had gone as low as 20 cents a share. However, a turnaround led by chairman and chief executive officer John Standley has helped the chain spur its script count and front-end business, enhance its store base and tighten its finances.

Walgreens, meanwhile, has seen its share price rebound sharply — up over 30% for the year to date — as the fallout from its contract dispute with Express Scripts Inc. has dissipated and investors have taken a more favorable view of its global partnership with Alliance Boots.

The chain's stock was hovering around the $50 mark on Tuesday, ranging from $49.88 to $50.35. Shares were as low as $28.35 over the past 52 weeks before eclipsing $50 yesterday and hitting a high of $50.35 today.

During the stand-off with the pharmacy benefit manager, Walgreens saw some of its prescription business go to competitors — since the chain had exited the Express Scripts pharmacy provider network — and watched its share price and same-store sales drop. But since rejoining the network on Sept. 15, Walgreens has regained a chunk of the lost Rx business and expects more customers to come back.

Walgreens also seems to have swayed Wall Street about the potential of the Alliance Boots deal with last month's announcement of the joint venture's partnership with pharmaceutical distributor AmerisourceBergen Corp. The sweeping agreement includes an expanded Rx distribution pact for Walgreens, global supply-chain opportunities with the Walgreens-Boots venture, and the right for the joint venture partners to buy an equity stake in AmerisourceBergen.

Rival CVS Caremark has continued to see its shares climb amid consistently strong financial performances, especially key client wins for its PBM business. The company's stock price ranged from $58.17 to $58.50 on Tuesday and has run from $43.08 to $58.50 over the past 52 weeks.

CVS Caremark, whose shares are up about 18% for the year to date, also has seen rising investor sentiment about the possibilities of its unique business model — which combines a retail drug store chain, PBM business and walk-in medical clinic operation — with the coming of expanded health insurance coverage next year through the Affordable Care Act.

Within the retail arena, the drug segment has been one of the leading price gainers in the stock market so far this year.

According to the S&P Composite 1500 GICS Sector Scorecard, from S&P Capital IQ, the drug retail subindustry was up 24.6% for the year to date as of April 19, ahead of food retail (+15.4%), general merchandise stores (+15.5%), department stores (+6.5%), Internet retail (+8.2%), specialty stores (+13%), apparel stores (+6.7), home improvement retailers (+16.1) and hypermarkets/supercenters (+12.3%), which includes warehouse club stores.

The only retail segments with greater growth than drug retail through April 19 were computer/electronics retail (+49.1%) and home furnishings (+25.3%), according to the S&P scorecard. In comparison, the benchmark S&P 500 and S&P Composite 1500 indexes were up 9% and 9.1%, respectively, for the year-to-date period.