Still Neutral on Walgreens - Analyst Blog


We reiterate our Neutral recommendation on Walgreens ( WAG ) 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 sidelines.

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 Express Scripts ( ESRX ) 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 CVS Caremark ( CVS ) 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 BioScrip Inc. ( BIOS ), both carrying a Zacks Rank #2 (Buy). Rite Aid Corporation ( RAD ) carries a Zacks Rank #1 (Strong Buy).

BIOSCRIP INC (BIOS): Free Stock Analysis Report

CVS CAREMARK CP (CVS): Free Stock Analysis Report

EXPRESS SCRIPTS (ESRX): Free Stock Analysis Report

RITE AID CORP (RAD): Free Stock Analysis Report

WALGREEN CO (WAG): Free Stock Analysis Report

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Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Business , Stocks

Referenced Stocks: BIOS , CVS , ESRX , RAD , WAG

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