We reiterate our Neutral recommendation on
) following the first quarter fiscal 2013 results. While the
company's performance is showing signs of improvement, the
current business environment is tough and keeps us on the
Why the Reiteration?
On Dec 21, 2012, Walgreens reported adjusted earnings per
share of 58 cents for the first quarter of fiscal 2013,
significantly below the Zacks Consensus Estimate as well as the
year-ago mark. Revenues also trailed the Zacks Consensus
Estimate. Despite a lukewarm start to fiscal 2013, things are
looking up with the company turning its fiscal 2012 headwinds
into tailwinds for the ongoing fiscal.
The new contract with
) boosts positive sentiment as traction in prescription sales at
Walgreens continues with the return of customers. The
introduction of prescription drugs in the generic market also
supports our non-committal stance. While the generic wave has
dragged sales over the last few quarters, the company expects the
gross margin expansion on account of higher generic prescription
drug sales to continue in the near term.
Notably, the company is undertaking strategic initiatives to
revive growth. The Alliance Boots deal is expected to be
accretive to Walgreens' results in the future. Its Balance Reward
customer loyalty program is expected to stimulate customer
traffic. We anticipate that these ventures will support growth
going forward. On the other hand, the tussle with players likes
) to regain market share is a cause of concern. Additionally,
macroeconomic conditions remain unyielding.
Following the first-quarter results, estimate revision trend
reflects a divided opinion while the magnitude of the earnings
estimate revision depicts a slightly positive bias for Walgreens.
Accordingly, the stock carries a Zacks Rank #3 (Hold).
Other Stocks to Consider
While we remain on the sidelines for this retail pharmacy
chain, we look forward to CVS Caremark and
), both carrying a Zacks Rank #2 (Buy).
Rite Aid Corporation
) carries a Zacks Rank #1 (Strong Buy).
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