Walgreen Reports 1Q11 EPS, JP Morgan Raises PT

JP Morgan has published a research report on Walgreen Company WAG after the company reported 1Q11 EPS earnings yesterday morning. In the report, JP Morgan writes "This morning, WAG reported 1Q11 EPS of $0.62, versus our estimate of $0.53 and Bloomberg consensus of $0.54 and represented y/y growth of 26%. EPS upside versus our expectations was driven by both gross profit (despite a $0.02 EPS impact from an inventory write-off related to flu shots) and SG&A, while about $0.01 of the upside versus our estimates came from a lower sharecount. Despite potential volatility in margins on a quarterly basis, management continued to reiterate its goal of returning to double digit earnings growth (but provided no color on timing). That said, despite several key EPS tailwinds in FY11 (less Duane Reade dilution, incremental Rewire savings, cycling the AWP rollback, and share repurchases), we also point to potential headwinds, including a weaker year for generics, ongoing pharmacy reimbursement pressure, and the sustainability of the front end margin strength." JP Morgan maintains its Neutral rating and has raised the price target from $38 to $39. Walgreen Company closed yesterday at $38.85.