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Summary

  • Walgreen meeting or beating isn't a given.
  • Rite Aid reports before Walgreen and may provide clues for Walgreen investors.
  • If the company can beat, analyst price target increases should propel the shares much higher.

Background: Walgreen Co., (WAG) together with its subsidiaries, is a $70 billion market cap operating a network of drugstores in the United States. It provides consumer goods and services, pharmacy, and health and wellness services through drugstores, as well as through mail, and by telephone and online.

52 Week Range: $43.31 to $75.84

Price To Book: 3.4

Strong third-quarter earnings growth is expected by Wall Street before the market opens on June 24, 2014. The consensus mean is 94 cents a share, a gain of 9 cents (9.6%) from 85 cents during the corresponding quarter last year.

Analysts are estimating as low as 88 cents per share, up to the most optimistic estimate of $1.02 per share. Along with beating last year's results, this quarter is expected to beat last quarter's result of 91 cents per share. Last quarter's 91 cents was a slight miss of the 93 cents expected.

WAG Chart

In the last three years, Walgreen misses about 22% of the time

The majority of analysts believe Walgreen continues to offer a buying opportunity. 14 of the 26 analysts covering the company give a buy recommendation. Some (10) are taking a more cautious approach, and rate it a hold. As of the last update I have, 2 analysts recommend selling some or all holdings.

During the last year, bulls have called it right. Shares gained 46% in the last year. The average analyst target price for Walgreen is $71.77. Mizuho raised its price target from $78 to $83 on June 9th, but otherwise, you have to go back to April 30th to find the previous target price increase.

WAG Revenue (Quarterly) Chart

With the shares trading above the average analyst price target, if Walgreen can meet or beat, expect multiple target price increases within days after reporting. That could help propel the shares into $80.

Option premium tells us that the market is pricing in a 2%, or about $1.76 move in the next 5 days.

That means, as a shareholder or potential investor, you should anticipate the stock to trade as low as $71.3, or jump higher to $74.82, and still remain within one standard deviation. If you're not already prepared for such a wide move (and there's no guarantee it won't move beyond the expected range), you want to be.

After last quarter's earnings release, the shares moved slightly higher. The shares increased 2.5% and traded within a relatively narrow bullish range to close at $65.93.

Competitors include Rite Aid Corporation (NYSE:RAD), CVS Caremark Corporation (NYSE:CVS), and Wal-Mart (NYSE:WMT).

Walgreen Co.

CVS Caremark Corporation

Rite Aid Corporation

Wal-Mart Stores Inc.

Strong Buy

4

10

1

5

Moderate Buy Buy

10

11

6

7

Hold

10

6

2

13

Moderate Sell Ratings

0

0

0

2

Strong Sell Ratings

2

0

0

0

Avg Analyst Price Target

$71.77

$81.21

$8.15

$80.52

Revenue

$75.98 billion

$133.94 billion

$26.19 billion

$487.05 billion

Est Low EPS

0.88

1.08

0.04

1.18

Est High EPS

1.02

1.12

0.09

1.29

1 Year Stock Price Change

45.60%

28.51%

133.33%

0.55%

Rite Aid Corporation reports earnings on June 19th and is expected to record 5 cents a share, a drop from 9 cents in the year ago same period. Rite Aid already provided preliminary results, so don't expect much of a surprise.

WAG Gross Profit (Quarterly) Chart

Highlights of Rite Aid's preliminary results include a 5% revenue increase for same store sales (influenced in part because of Easter) and positive per share results that will beat most analysts' estimates. Rite Aid is much cheaper per share than Walgreen, but on a forward earnings-per-share basis, I believe Walgreen offers a better value for every dollar invested.

Another advantage Walgreen's investors have is a 1.7% current dividend yield.

At the time of writing and from the latest short interest report, the short interest is minor and not a cause of distraction. The small amount of short interest is 2.2%. It's much smaller than Rite Aid's 4.6% short interest.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

Source: Walgreen's Third Quarter Earnings Preview