On Aug 24, Zacks Investment Research downgraded drug retailer
) to a Zacks Rank #4 (Sell).
Why the Downgrade?
Walgreens has witnessed sharp downward estimate revisions since
it reported disappointing third-quarter fiscal 2013 results on
Jun 25. In the most recent quarter, Walgreens' adjusted net
earnings of 85 cents missed the Zacks Consensus Estimate by a
nickel despite an 18.1% year-over-year improvement.
Furthermore, the company has delivered negative earnings
surprises in 3 of the last 4 quarters with an average negative
surprise of -6.17%. In the last quarter, sales of $18.31 billion
lagged the Zacks Consensus Estimate of $18.46 billion despite the
benefits of increasing return of
Express Scripts Holding Company
) customers. Notably, Walgreens missed the Zacks Consensus
Estimate for revenues for the fifth time in a row.
According to management, at least part of the reason for another
dull performance was lower-than-expected front-end sales and
unyielding macroeconomic conditions. Walgreens also faces a
relentless decline in customer traffic in comparable stores.
While the company continued to witness higher profitability on
the back of the generic wave in the pharmaceutical industry, the
sustainability will be questioned as the benefits from the
introduction of generics top out as the industry surmounts the
'patent cliff.' This adds to stock woes.
Based on these issues and the macroeconomic backdrop, estimate
revision trend also appear extremely bearish for Walgreens. The
Zacks Consensus Estimate for fiscal 2013 decreased 4.3% over the
last 60 days to $3.13 with uncontested downward revision of all
11 estimates. For fiscal 2014, most of the estimates were revised
lower over the same time frame, sinking the Zacks Consensus
Estimate by 3.8% to $3.55 per share.
Stocks to Consider
While it is time to give up on Walgreens share, other players in
the drug retail space such as
GNC Holdings Inc
) are worth considering. These stocks carry Zacks Rank #2
EXPRESS SCRIPTS (ESRX): Free Stock Analysis
GNC HOLDINGS (GNC): Free Stock Analysis
HERBALIFE LTD (HLF): Free Stock Analysis
WALGREEN CO (WAG): Free Stock Analysis Report
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