Walgreen, Inc. - Momentum

Walgreen, Inc. (WAG) just hit a new multi-year high of $41.65 after jumping higher in late December on a 15%, Q1 earnings surprise. With a discounted PE relative to its peers and bullish 16% growth projection, this Zacks #1 rank stock has a prescription for momentum.

Company Description

Walgreen Co, together with its subsidiaries, operates a chain of drug stores in the United States. The company operates 7,650 stores and has a market cap of $38 billion.

Although WAG has been trending higher with the market since early September, shares took a big jump on Dec 22 after the company reported strong Q1 results that handily beat expectations.

Third-Quarter Results

Revenue for the period was up 6% from last year to $17.3 billion. Earnings also looked good, coming in at 62 cents, 15% ahead of the Zacks Consensus Estimate for the company's second consecutive surprise.

Walgreen's largest segment, prescription sales, accounting for 66% of total revenue, was up 5.3% from last year. It also sold 5.6 million flu shots, the second most outside of the federal government.

Margins were on the upswing during the quarter, with gross margin expanding 80 bps to 28.5%.

Buying Shares Back

Walgreen's was also busy returning value to its shareholders, buying back $510 million in common stock during the quarter,

Financial Profile

Moving forward, the company will benefit from its strong financial profile, with cash and equivalents of $2.06 billion and a total debt load of $2.4 billion. Its debt-to-equity ratio of 17% is below the industry average of 19%.

Estimates

We saw some decent movement in estimates off the good quarter, with the current year adding 11 cents to $2.60 and the next-year estimate gaining 16 cents to $3.01, a solid 16% growth projection.

Valuation

But in spite of the gains, the valuation picture still looks solid, with a forward P/E of 16X against the industry average of 19X.

6-Month Chart

On the chart, shares jumped higher in mid December on the good quarter, recently hitting a fresh multi-year high at $41.65 on the upward momentum. Look for support from the trend line on any weakness, take a look below.

Michael Vodicka is the Momentum Stock Strategist for Zacks.com. He is also the Editor in charge of the new Zacks Momentum Trader Service.
 
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