Morgan Stanley Defends Walgreen Despite Inversion Decision

In a note dated August 5, Morgan Stanley said even without an inversion scenario, Walgreen WAG should still see upside to consensus estimates due to synergies, costs and tax rate.

The firm believes Walgreen could reach a tax rate of ~26 percent over the next two years through debt refinancing and JV locale. Additionally, Morgan Stanley sees a 200-400 bps incremental long-term benefit through Boots private label penetration, potential IP licensing and other transfer pricing mechanisms.

Looking to estimates and guidance, Morgan Stanley said the company could guide EBIT and EPS to $8.3 billion and $5.35, respectively, in fiscal 2016. However, the firm is estimating $8.2 billion and $5.03, which represents a 28 percent tax rate, $1 billion in synergies and ~$500 million SG&A cost savings.

Morgan Stanley currently rates Walgreen at Overweight.