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Walgreen reports 4th fiscal quarter of 2012 before the bell on Friday morning, September 28, 2012 with analyst consensus expecting $0.56 in earnings per share on $17.16 billion in revenues for expected year-over-year declines of 1.5% in earnings and 4.5% in revenues.

2011's 4th quarter produced $0.57 on $17.9 billion in revenues.

Walgreen's two primary events over the last year have been important milestones for the company: the majority stake in Alliance Boots and the settling of the Express Scripts mess has resulted in a boost in the stock price from under $30 to $36 today. While the settling of the ESRX mess was the biggest reason for the jump in the stock, Alliance Boots will be the longer-term catalyst for the shares.

While Walgreen has seen downward revisions to earnings and revenue estimates the last 12 months, there is light at the end of tunnel as recent revisions for 2013 haven been higher. Here is a history of fiscal 2013's earnings estimate over the last 12 months:

Current: $3.08

Aug 31'12: $3.07

May 31'1: $2.88

Feb 29'12: $2.94

Nov 30 '11: $3.13

Sep 30'11: $3.27

*source:thomsonone Analytics

As the reader can quickly tell, it looks like the 2013 EPS estimate for WAG bottomed last May, and has now started to be revised higher.

At $36 per share, Walgreen is now trading at 12(x) fiscal '13's estimate of $3.08 and 10(x) fiscal '14's current estimate of $3.38 for expected growth in 2013 and '14 of 18% and 10% respectively.

In addition, WAG's price to sales ratio (4-quarter trailing) is 0.41(x), which seems attractive for a branded retailer like WAG.

One issue that keeps surfacing around WAG is generics and margin pressure. We've heard about it and read about and perhaps the Alliance acquisition is designed to offset this pressure, but margins have been pretty stable and as of the May quarter, and for the last few years, we don't see that kind of pressure.

One substantial positive we see is WAG's cash-flow valuation which looks compelling, particularly if we can get a pullback in the stock to the low $30's. WAG is trading at 7(x) and 10(x) cash flow and has been greatly reducing shares outstanding with the excess cash in the last 3 years.

Since the market lows in early 2009, WAG has reduced their fully-diluted shares outstanding from 993 million shares in May, 2009 to 865 million, or a 13% reduction in shares. That is a lot of WAG market cap that has been retired via the share repo program.

Walgreens has been decimated since its early 2000 and late 2007 highs when the stock traded near $50. the last 12 years has seen a collapse of large-cap growth stocks, p.e compression, as well as intensified competition from CVS and a changing of the traditional drug-store business model.

We've been in the stock and out of the stock, and then back in, etc. etc., but the settlement of the ESRX issue takes large "event risk" out of the shares even though the Alliance acquisition now adds acquisition and implementation risk to the company.

To conclude, we would love WAG to pull back to $33 (and even better $30) but the stock may not do so as earnings estimates for fiscal 2013 get revised higher. Just since the May quarterly report in June, the fiscal 2013 earnings estimate has risen from an expected 12% growth next year to its current 18% expectation.

We love WAG's cash-flow, and the repurchase of shares, not to mention the 2% dividend yield, we just want to own it on a pullback.

Source: Walgreen Earnings Preview: Solid Cash-Flow Supports An Improving Earnings Picture