Walgreens Company Analyst Roundup Following Q1 Earnings

Shares of Walgreen Company (NYSE: WAG) surged over 3 percent Tuesday to $76.53 after beating Q1 earnings expectations.

ISI Group’s Ross Muken noted that Walgreen’s management “expressed commitment to speciality infusion business” on the earnings conference call.  The company was also focused on top-down cost cutting, reducing inventory and reducing the work-load in stores to allow employees to spend more time helping customers.

Analysts commented on the stock after the earnings release. Below are some highlights along with current ratings and price targets.

Mizuho Securities - Neutral, $72 price target.

“WAG reported F1Q adjusted EPS of $0.81 versus our $0.76E and consensus of $0.75E with upside attributable to a lower tax rate versus our estimate. We are maintaining our FY15E - FY17E adjusted EPS and will update our model for the early closing of Alliance Boots...once the deal closes.

“Medicare Part D reimbursement is expected to take another step down as 1/1/15 rates take effect further pressuring margins in F2Q and across FY15. Our quarterly estimates now reflect the timing impact. Generic inflation remains a headwind, limiting upside from brand-to-generic conversions and improved purchasing. We expect continued uptake in preferred and narrow networking to weigh on pharmacy margins going forward.”

Deutsche Bank - Buy, $82 price target

“While gross margins came in weaker than expected on continued pharmacy reimbursement pressure, SG&A costs were below our expectation and a lower tax rate (27.4 percent) also padded results. On the call, the company detailed how reimbursement pressure is expected to remain a constant headwind to gross margin expansion, but that Walgreens is expecting to see some relief from payers with respect to generic inflation.

“We are raising our F2015 EPS estimate to $3.77 from $3.60 reflecting this quarter’s beat, a faster deal close, and lower expected interest expense. Our F2016 EPS estimate increases from $4.37 to $4.45 reflecting a slightly lower interest expense that year. Our estimates could prove conservative should the company be more aggressive on reducing operating costs or generating synergies above the currently targeted levels.”

Bank of America - Neutral, $75 price target

“WAG’s latest results suggest to us expectations for the core US business may finally be conservative enough for it to meet a consensus view more consistently. That in itself is encouraging, but more euphoria will likely stem from disclosure of an earlier expected close of the Alliance Boots deal that will end current management’s tenure and mitigate ongoing challenges in generic inflation, pharmacy reimbursement and deteriorating customer traffic. WAG stands to pay another $16 billion for the remaining 55 percent interest in Alliance Boots, a rich price tag for a significant balance sheet liability, a profit contribution that does not appear to be growing much, and an expected purchasing synergy that may not be sustainable. Despite the latest upside, we remain cautious on the profit expectations for the combined entity.”