Market Overview

Walgreen Earnings Preview: Strong EPS Growth Expected

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Walgreen (NYSE: WAG), which has already announced that sales for the period were strong due to increased investment in promotional strategies, is scheduled to share its first-quarter fiscal 2014 results Friday, December 20, before the opening bell.

Investors will be looking for details on sales in the front end of its stores, or aside from its pharmacies, which the company has made a recent priority. They will also be interested in the effects of last year's acquisition of a stake in European health and beauty retailer Alliance Boots and the supply agreement reached in September with pharmaceutical wholesaler AmerisourceBergen.

See also: Walgreen Q1 Sales Surge Six Percent

Expectations

Analysts on average predict that Walgreen will say its revenue for the quarter rose about six percent year-over-year to $18.36 billion. Earnings of $0.72 per share are also in the consensus forecast. That would be up from to a reported profit of $0.58 per share in the same period of last year.

Note that the consensus earnings per share (EPS) estimate has slipped from $0.74 in the past 60 days. Also that Walgreen fell short of consensus EPS estimates in two of the previous four quarters. The second quarter beat was by just a penny per share.

In the four-quarter report, the CEO said: "We closed the year with record sales and record free cash flow, and we were pleased to be able to return more than $1 billion to shareholders during fiscal 2013 as we increased our dividend for the 38th consecutive year." The share price rose about five percent following the report.

Looking ahead to the current quarter, which includes much of the holiday shopping period, the forecast currently calls for sequential and year-over-year growth of both EPS and revenues. However, that consensus EPS estimate has ticked down a penny in the past 60 days.

The Company

Walgreen is the largest drug retailing chain in the United States, operating more than 8,100 stores in all 50 states, the District of Columbia, Puerto Rico and Guam that offer consumer goods and pharmacy services. It also manages health care clinics and wellness, occupational health and fitness centers.

This S&P 500 component was founded in 1901, and its headquarters are in suburban Chicago. It now has a market capitalization of more than $53 billion. Gregory D. Wasson has been president of the company since May of 2007 and chief executive officer since February 2009.

Competitors include CVS Caremark, Rite Aid and Walmart. Analysts expect all three companies to report marginal revenue growth but a decline in EPS, relative to the year-ago period, when they next share their quarterly results.

During the three months that ended in November, Walgreen shifted some employees to private health care exchanges, maintained its dividend, announced it would launch a prepaid debit card, completed acquisition of Kerr Drug and appointed its first president of digital and chief marketing officer.

See also: Walgreen Names Sona Chawla President Of Digital And Chief Marketing Officer

Performance

Walgreen has a long-term earnings per share growth forecast of almost 13 percent, but the price-to-earnings (P/E) ratio is higher than those of the competitors mentioned above. Its return on equity is near 13 percent. Its dividend yield near 2.2 percent is more generous than CVS Caremark's.

The number of Walgreen shares sold short, as of the November 29 settlement date, represents less than two percent of the total float, even after rising more than 13 percent from the previous period. It would take about three days to close out all of the short positions.

Five of the 24 analysts surveyed by Thomson/First Call who follow the stock rate the stock at Strong Buy, and another 11 of them also recommend buying shares. The analysts' mean price target, or where they expect the stock to go, is about six percent higher than the current share price. That would be a new multiyear high.

While the share price has pulled back more than six percent in the past month, it is still more than 47 percent higher year to date. The share price recently dropped below the 50-day moving average. Over the past six months, Walgreen has underperformed CVS Caremark and Rite Aid but outperformed Walmart and the S&P 500.

At the time of this writing, the author had no position in the mentioned equities.

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Posted-In: Alliance Boots amerisourcebergen cvs caremark Rite AidEarnings News Previews Trading Ideas Best of Benzinga

 

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