Why Walgreen Earnings Are Boosting Stock Toward New All-Time High

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Walgreen Co. (NYSE: WAG) reported first-quarter fiscal 2015 results before markets opened Tuesday. The drugstore chain reported adjusted diluted earnings per share (EPS) of $0.81 on revenues of $19.55 billion. In the same period a year ago, Walgreen reported EPS of $0.72 on revenue of $18.33 billion. First-quarter also results compare to the consensus estimates for EPS of $0.75 and $19.5 billion in revenue.

On a GAAP basis, the company posted net income of $809 million in the first quarter ($0.85 per share). Adjustments included a $0.10 per share charge for currency exchange effects and a $0.23 benefit on an increase of the fair market value of warrants.

Front-end (i.e., non-prescription) same-store sales rose 1.5% in the first quarter and total sales rose 6.7%. Traffic was down 2.7%, though basket size rose by 4.2%. Total same-store sales rose 5.7% in the quarter.

Prescription sales accounted for 66.8% of revenues in the first quarter and were up 9% year-over-year. Same-store prescription sales were up 8.1%. Walgreen filled 222 million prescriptions in the quarter, a record, and 4.3% higher year-over-year.

Walgreen did not offer any specific guidance updates in its earnings release, but the consensus estimates for the second quarter call for EPS of $0.93 on revenues of $20.59 billion. Full-year consensus estimates are EPS of $3.56 on revenues of $101.28 billion.

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The company’s CEO said:

This quarter we had solid performance across both our pharmacy and retail products businesses. … We also completed our financing to close the Alliance Boots transaction as we move toward our shareholder vote on Dec. 29 to finalize the merger, ahead of our original goal. This truly is an extraordinary time for Walgreens as we achieve our vision of becoming a pharmacy-led, global enterprise for health and wellbeing with Alliance Boots.

Walgreen saw its shares fall by about 16% in August from $68.74 to $57.75. The drop followed Walgreen’s decision not to invert its corporate domicile for a lower effective tax rate when it acquired Alliance Boots. Shares closed at $74.27 on Monday, perhaps indicating that all is forgiven.

If shareholders approve next week the final step in the Alliance Boots transaction, Walgreen expects to close the deal on December 31. CEO Greg Wasson announced earlier this month that he is retiring shortly after the deal is completed.

Walgreen’s stock chart crossed above its 50-day moving average in late October and has not looked back. The 50-day moving average is currently $66.68.

Shares were up about 4.2% in premarket trading Tuesday morning to $77.35, above the 52-week range of $55.27 to $76.39. Thomson Reuters had a consensus analyst price target of $70.00 before the results were announced.

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