Citi Gives A Quick Take On Walgreen Co's Earnings

Walgreen Co WAG reported F2Q11 EPS of $0.80 per diluted share, in-line with Citi's estimate of $0.80 and consensus of $0.80, and vs. $0.68 LY. Reported EPS included a (-$0.01) impact from restructuring and restructuring-related costs associated with the company's Rewiring for Growth initiative, as well as a (-$0.01) impact associated with integration costs from the company's Duane Reade acquisition. During the quarter, WAG increased its retail prescription market share to 20.1%, filling approximately 205M prescriptions. Results were driven by SG&A leverage and lower interest expense, somewhat offset by gross margin contraction and a higher tax rate vs. Citi estimates. Risks include: reimbursement pressure, which could lead to contracting margins; Walgreens consistently exceeds our expectation for pharmacy market share gains and delivers better-than-expected comps on the front end; The risk that Wal-Mart becomes more aggressive in pharmacy, as evidenced by the company's $4 generic offering. Citi has a $43 PT on WAG WAG is trading 7% lower at $38.89