Market Overview

Walgreen Earnings Preview: In Need Of A Booster Shot?

Walgreen Earnings Preview: In Need Of A Booster Shot?
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Walgreen (NYSE: WAG), which has already announced strong same-store sales growth for February despite the inclement weather, is scheduled to share its second-quarter fiscal 2014 results Tuesday, March 25, before the opening bell. Shares were cut to Sell by one analyst last week.

Investors will still be keeping an eye on sales in the front end of its stores, or aside from its pharmacies, which the company has made a recent priority. CNBC's Jim Cramer said last week that reaction to the earnings report will show whether investors continue to rotate out of higher multiple stocks.

See also: Morgan Stanley Reiterates on Walgreen Company on 2QFY14 Earnings Preview

Expectations

Analysts on average predict that Walgreen will say its revenue for the quarter rose more than five percent year-over-year to $19.61 billion. Earnings of $0.92 per share are also in the consensus forecast. That would be down from to a reported profit of $0.96 per share in the same period of last year.

Note that the consensus earnings per share (EPS) estimate has slipped by a penny in the past 60 days. Also that Walgreen beat consensus EPS estimates in only two of the previous four quarters. The first quarter EPS were in line with analysts' expectations.

In the first-quarter report, the CEO said: "Given the continued soft economy, we were generally satisfied with our top-line growth where we increased both traffic and sales for the quarter as well as our pharmacy market share." The share price rose more than three percent following the report.

Looking ahead to the current quarter, the forecast currently calls for sequential and year-over-year growth of EPS, and that consensus EPS estimate has ticked up by a penny in the past 60 days. Revenue is expected to show a gain of less than five percent, relative to a year ago.

The Company

Walgreen is the largest drug retailing chain in the United States, operating more than 8,600 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 $61 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, which is expected to show solid growth on the top and bottom lines in the current quarter; Rite Aid, which is forecast to have declining earnings and marginal sales growth; and Walmart, which will have marginal EPS and revenue growth, if analysts are correct.

During the three months that ended in February, Walgreen opened a flagship store in New York City, sued its competitors over their mobile prescription refill systems, reported strong results for December and January and was under pressure to follow Rite Aid and drop tobacco sales.

See also: Which Retailer Will Be Next To Discontinue Tobacco Sales?

Performance

Walgreen has a long-term earnings per share growth forecast of almost 14 percent, but the price-to-earnings (P/E) ratio is higher than those of CVS Caremark and Walmart. Its return on equity is about 14 percent. Its dividend yield near 1.9 percent is more generous than CVS Caremark's.

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

Five of the 27 analysts surveyed by Thomson/First Call who follow the stock rate it 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 almost seven percent higher than the current share price.

While shares have traded mostly between $66 and $68 since mid-February, the share price is still more than 14 percent higher year to date and still well above 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: cvs caremark Jim Cramer Rite Aid walgreenEarnings News Previews Trading Ideas Best of Benzinga

 

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