Walgreen and Express Scripts remain at an impasse. Walgreen's (WAG) fourth-quarter results slightly exceeded our expectations. However, the relatively strong performance was overshadowed by management commentary that seemed to indicate Walgreen and Express Scripts (ESRX) remain far apart in their negotiations, with little hope of reaching an agreement before their current contract expires. We are maintaining our fair value estimates for now, but will be inclined to lower Walgreen's valuation if the contract is not renewed.

We have consistently stated that it is in both Walgreen's and Express Scripts' best interest to come to an agreement. While investors are rightly concerned that Walgreen's management claims "no substantive progress" has been made in the negotiations--sending Walgreen's shares down 6% on Tuesday--the companies still have three months to find a compromise.

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