Walgreen (WAG) CL-Buy Reiterated at Goldman Sachs (Earlier)

Goldman Sachs maintained a Conviction Buy rating on Walgreen (NYSE: WAG) with a price target of $80. Comments follow meetings with Wade Miquelon, CFO. Analyst Robert P. Jones continues to believe Walgreen has underappreciated potential earnings power.

Analysis

"(1) FY16 targets remain attainable: Of the five targets, all are tracking on/ahead of plan with the exception being the adj. EBIT goal of at least $9.0bn as core growth has lagged. That said, WAG did not back away from this target, with synergies & its ABC relationship helping achieve this goal.

(2) Recent script growth encouraging: WAG believes underlying Rx utilization is improving, with script growth improving in the last two months. WAG also out-comped CVS/RAD in the latest quarter, and the company is focused on bigger, more profitable baskets to drive profitability.

(3) Just scratching the surface in FY16: One of the biggest LT opportunities is leveraging the store base to expand its scope of healthcare services, including retail clinics and Theranos. Post Step 2, WAG will have a strong global footprint, with the goal of expanding in growing markets like LatAm.

(4) Ways to lower tax rate beyond inversion: While WAG is open to exploring all avenues to maximize shareholder value, management pointed out that the current deal structure is not conducive to an inversion. However, there may be an opportunity to refinance AB’s ~$11.2bn of debt (a/o FY13) with new WAG debt, thereby shifting a greater percent of taxable earnings to AB’s lower tax jurisdiction without inversion," said Jones.

For an analyst ratings summary and ratings history on Walgreen click here. For more ratings news on Walgreen click here.

Shares of Walgreen closed at $68.61 yesterday.

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