Jefferies Sees Walgreen Dropping to $20 If Dispute With CVS is Not Resolved (WAG, CVS)

Jefferies analysts Scott Mushkin, Bakley Smith, and Mike Otway are concerned about potential downside to Walgreen (NYSE: WAG). They maintained their Hold rating, however, due to the unpredictability of the situation with CVS/Caremark (NYSE: CVS).

CVS/Caremark and Walgreens have drawn a line in the sand, and neither side is giving indications of a compromise. An interview with Walgreen CEO Greg Wasson gave indication that the company is preparing for business as usual without Caremark.

"We sharpened our analysis from yesterday and, although the situation remains highly fluid, it indicates up to $1.00 of EPS is at risk in fiscal '11, assuming the company is unable to replace lost revenue quickly."

Jefferies' target price for WAG stayed at $36.00. WAG is currently trading at $29.83.