Why Walgreen (WAG) Is Rated 'Outperform'

Tickers in this article: WAG

NEW YORK (TheStreet) -- Leerink initiated its coverage of Walgreen with a rating of "outperform" Friday.

The analyst firm set a price target of $68 for the company, higher than its Thursday closing price of $59.22. The firm says retail pharmacy checks have been positive, and that Walgreen is "leveraged to industry growth tailwinds."

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Separately, TheStreet Ratings team rates WALGREEN CO as a Buy with a ratings score of B+. TheStreet Ratings Team has this to say about their recommendation:

"We rate WALGREEN CO (WAG) a BUY. This is driven by several positive factors, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, impressive record of earnings per share growth, compelling growth in net income, largely solid financial position with reasonable debt levels by most measures and solid stock price performance. We feel these strengths outweigh the fact that the company shows weak operating cash flow."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth came in higher than the industry average of 6.3%. Since the same quarter one year prior, revenues slightly increased by 5.8%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • WALGREEN CO reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past year. We feel that this trend should continue. During the past fiscal year, WALGREEN CO increased its bottom line by earning $2.56 versus $2.42 in the prior year. This year, the market expects an improvement in earnings ($3.48 versus $2.56).
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Food & Staples Retailing industry. The net income increased by 68.3% when compared to the same quarter one year prior, rising from $413.00 million to $695.00 million.
  • Powered by its strong earnings growth of 67.44% and other important driving factors, this stock has surged by 43.61% over the past year, outperforming the rise in the S&P 500 Index during the same period. Looking ahead, the stock's sharp rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry. We feel, however, that other strengths this company displays justify these higher price levels.
  • WAG's debt-to-equity ratio is very low at 0.25 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Even though the company has a strong debt-to-equity ratio, the quick ratio of 0.42 is very weak and demonstrates a lack of ability to pay short-term obligations.