Barclays Raises Walgreen Price Target Following Q1 Print

Meredith Adler of Barclays maintained an Equal-Weight rating on Walgreen Company (NYSE: WAG) with a price target raised to $72 from a previous $68 following the company's first quarter results.

According to Adler, Walgreen's results were “ahead of expectations” and during the earnings call, the company provided greater clarity than it has in the past on several issues including a “realistic assessment” of ongoing reimbursement pressure, Medicare Part D contracting and occupancy costs.

“We view management's more realistic tone as sobering near term, encouraging long term,” Adler wrote. “On generic inflation, management acknowledged that new contracting strategies will take an extended period (read 1-2 years) to meaningfully offset inflation. On Part D, WAG stated that while the program is profitable, volume gained in 2015 will not offset lower profitability per script, resulting in a net decline in gross profit even as it support leverage of fixed pharmacy costs. On occupancy, Walgreen acknowledged costs are too high and that there is little that can be done near term as landlords are unlikely to make concessions for Walgreen given its solid credit rating, even when leases expire.”

Adler also states that Walgreen needs to find ways to improve its store productivity by better matching its products and services with local demand. The analyst adds that Walgreen could benefit from a loyalty data plan, but it will take time for the company to figure out what works best.

Shares traded recently at $77.66, up 1.5 percent.