Walgreen Earnings Preview: Higher EPS Expected

Walgreen (NYSE: WAG) is scheduled to report fiscal first-quarter 2012 results tomorrow, December 21, before the opening bell. Investors will be looking for anything that might boost the stock's sagging share price, like perhaps an easing of tensions between Walgreen and Express Scripts (NASDAQ: ESRX). Four analysts have decreased their estimates on the stock over the past 30 days.

The consensus forecast of analysts calls for Walgreen to report quarterly earnings of $0.67 per share, which is up a nickel from the same period of last year. And looking ahead to the current quarter, analysts so far anticipate sequential and year-over-year EPS growth. Note that Walgreen has not fallen short of consensus EPS estimates in the past five quarters.

The company has already reported first quarter 2012 sales of $18.16 billion, or 4.7% higher year over year. Revenue has risen in the past four quarters. And sequential and year-over-year growth in sales is predicted for the current quarter as well.

The Company

Headquartered in Chicago's suburbs, Walgreen operates a chain of drugstores in the United States. It provides pharmacy services and operates clinics in its more than 8,200 locations. The company was founded in 1901 and now is an S&P 500 component with a market cap of $29.9 billion.

During the three months that ended in November, the company stayed open on Thanksgiving Day, offered mobile coupons for Black Friday, and launched its first electric vehicle charging station as well as its 100th solar power installation.

Performance

Per-share earnings are expected to grow more than 10% over the next five years and the dividend yield is 0.9%. The P/E ratio is less than the industry average, and short interest in 2.3% of the float. Analysts who follow the stock have a mean price target of $38.25 per share, which is more than 14% higher than the current share price.

The share price has fallen more than 23% in the past six months and is only a couple of bucks higher than the 52-week low. But it is still above 50-day moving average. Over the past six months, the stock has underperformed competitors CVS Caremark (NYSE: CVS) and Walmart (NYSE: WMT), as well as the broader markets.

Action Items:

Bullish: Investors interested in exchange traded funds invested in Walgreen might want to consider the following trades:

• PowerShares Buyback Achievers (NYSE: PKW) is more than 14% higher than the 52-week low.
• Consumer Staples Select Sector SPDR (NYSE: XLP) is more than 13% higher than the 52-week low.
• Rydex S&P Equal Weight Consumer Staples (NYSE: RHS) is more than 13% higher than the 52-week low.

Bearish: Traders may prefer to consider these alternative positions in the same sector:

• GNC Holdings (NASDAQ: GNC) is up about 74% from the 52-week low.
• Rite Aid (NYSE: RAD) is up more than 36% from the 52-week low.
• CVS Caremark (NYSE: CVS) is up more than 17% from the 52-week low.

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