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Christmas Comes Early For For Walgreen (WAG) Bulls

December 24, 2012 7:33 AM EST
Get Alerts WAG Hot Sheet
Price: $76.05 --0%

Rating Summary:
    0 Buy, 0 Hold, 0 Sell

Rating Trend: = Flat

Today's Overall Ratings:
    Up: 13 | Down: 11 | New: 11
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On Friday shares of Walgreen Co. (NYSE: WAG) traded lower after the drugstore chain reported Q1 results that missed expectations. Commenting on developments, analysts Ajay Jain of Cantor Fitzgerald said “We believe the reaction to WAG's 1Q earnings is understandable and reflects continued frustration on the lack of transparency on the Alliance Boots transaction and the lack of clarity regarding the underlying earnings picture.”

In June, Walgreen announced a 45 percent stake in Alliance Boots, which cost the company $6.7 billion. The deal also gave Walgreen the option to acquire the remaining 55 percent ownership within 3 years.

"While the initial phase of the transaction is expected to be immediately accretive in FY:13 (before transaction costs), the full extent of transaction costs could be very material and they haven’t been fully disclosed by Walgreen at this time." said Jain.

Overall Cantor Fitzgerald is positive on Walgreen, and thinks recent weakness reflects confusion about Walgreen’s earnings outlook.

"The latest guidance offers further validation on the synergy streams. The accounting delay resulted in a $0.07 drag on earnings from Alliance Boots in 1Q instead of a $0.03 benefit had the reporting lag not been in effect. The delay combined with a higher than expected tax rate of 38.2% would imply an underlying performance that was much more consistent with Street expectations," said Jain.

Jain expects additional lag earnings adjustments from the Alliance Boots transaction and modified EPS estimates to $2.68 and $2.94, respectively, for FY:13 and FY:14 (from $2.97 and $3.27). He also said the recent confusion-related selloff could be a "Christmas Gift".

Cantor Fitzgerald has a Buy rating on Walgreen (NYSE: WAG) with a price target of $45.00.

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 $36.31 yesterday.


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