Walgreen Earnings Preview: Losing Out to CVS?

Drugstore operator Walgreen (NYSE: WAG) reports fiscal first-quarter results Wednesday before the bell and there are a couple of marquee issues the company needs to address. Chief among them is the impending deadline for the break from pharmacy benefits manager Express Scripts (Nasdaq: ESRX). At issue is costs for pharmaceuticals. Walgreen says Express Scripts doesn't pay it enough and Express Scripts says its paying the drugstore chain too much.

Analysts expect Illinois-based Walgreen to post a profit of 67 cents per share and $18.22 billion in revenue. That compares with a profit of 62 cents per share on revenue if $17.34 billion a year earlier. The company already said the rift with Express Scripts led to a decline in November same-store sales.

Investors will also be looking to see if Walgreen can provide an outlook that is as bullish as the one provided by rival CVS Caremark (NYSE: CVS) on Tuesday. Not to mention, CVS boosted its quarterly dividend 30%.

The Dividend: To be fair, the CVS dividend announcement could be seen as a response to Walgreen's dividend increase announced earlier this year. Walgreen currently yields 2.9%, well above the five-year average of just 1.8%. Walgreen's payout ratio is just 26% so it can absorb another dividend increase, but that doesn't mean it will happen tomorrow.

Overall, Wall Street will be more concerned with guidance and news on the relationship with Express Scripts.