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Why Walgreen Has Looked Sick This Year

As we approach the halfway point for 2012, now's a good time to look back at what's happening with the stocks that interest you. By making sure you know the important things that a company accomplished -- as well as the setbacks it experienced -- you can make a better decision about whether it's a smart investment for your portfolio.

Today, let's take a look at Walgreen (NYSE: WAG  ) . The drugstore retailer has a long history atop its industry, with a strong presence across the nation. But lately, a key relationship with a pharmacy benefits manager has posed a huge threat to Walgreen's competitive advantages. Let's take a quick look at how the stock is doing so far this year.

Stats on Walgreen

2012 YTD Return (10.8%)
Market Capitalization $25 billion
Revenue, Most Recent Quarter $17.8 billion
Year-Over-Year Revenue Growth, Most Recent Quarter (3.4%)
Net Income, Most Recent Quarter $537 million
Year-Over-Year Net Income Growth, Most Recent Quarter (10.9%)
CAPS Rating ***

Source: S&P Capital IQ, company reports.

What's behind Walgreen's drop?
The big problem that Walgreen has faced lately comes from its dispute with Express Scripts (Nasdaq: ESRX  ) . Because the two companies couldn't agree on a new contract before the beginning of 2012, Walgreen now no longer fills prescriptions for customers on Express Scripts benefits plans unless those customers are willing to make payment arrangements.

As you'd expect, that has caused a mass exodus of prescription customers. CVS Caremark (NYSE: CVS  ) has seen big benefits, but even long-struggling Rite Aid (NYSE: RAD  ) has seen a noticeable pick-up in customers stemming from the Walgreen-Express Scripts breakup.

Even with sales and income down in its most recent quarter, Walgreen doesn't seem all that concerned. It raised its dividend for the 37th consecutive year, kicking up its payout by a whopping 22%. Yet even that boost hasn't made investors feel more comfortable with the drugstore chain's current situation.

The company's even making an unusual move aimed at extending its reach. Earlier this month, Walgreen said it would buy a 45% stake in European pharmacy giant Alliance Boots. The arrangement would give Walgreen the right to buy the rest of Alliance outright in about three years. The sale will be quite profitable for private-equity investor Kohlberg Kravis Roberts (NYSE: KKR  ) , which made a big investment in Alliance's leveraged buyout in 2007. Whether it works out as well for Walgreen remains to be seen.

But clearly, Walgreen needs to do a lot of work to improve its performance. If you'd prefer some other stock ideas with more certain prospects for success, let me invite you to learn about three smart long-term stock plays in the Fool's latest special report. It's yours for the taking and is absolutely free, but don't miss out -- click here and read it today.

Click here to add Walgreen to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.

Fool contributor Dan Caplinger doesn't own shares of the companies mentioned. Motley Fool newsletter services have recommended buying shares of Express Scripts. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool has a disclosure policy.

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