Moody’s Investors Service lifted its ratings outlook on Walgreen Co. (WAG) to stable from negative after the drugstore chain resolved a spat with CVS Caremark Corp. (CVS).
Walgreens agreed to new terms last week under which it will continue to participate in the smaller rival’s pharmacy benefit network. Chief Executive Greg Wasson said then he was “pleased” with the outcome. Walgreen had said earlier this month it planned to pull its stores from the network. Two days later, CVS Caremark said it planned to drop Walgreen by July 9.
The row came as Walgreen has struggled with sluggish consumer demand and saw its latest-quarter profit fall amid higher costs from its store-remodeling project to make stores more customer friendly. The company is also looking to its Duane Reade acquisition to drive growth.
The resolution of the CVS Caremark dispute removes the risk of a “sizable loss” in Walgreen’s revenue, Moody’s senior credit officer Maggie Taylor said Friday. The rating agency also said that it expects the Duane Reade integration to go smoothly and that the company will improve its operating performance.
It has Walgreen at A2, midway between Aaa and junk territory, supported by a strong market position and low debt. The outlook was lowered to negative two weeks ago as the CVS Caremark fight was ongoing.
Walgreen shares were down 36 cents, to $27.23, in afternoon trading. The stock is down nearly 26 percent this year.
