Monday, December 27, 2010

Walgreen (NYSE:WAG) Generating Higher Margins, Lower Costs

As far as changes Walgreen (NYSE:WAG) can make to improve their performance, most of them have been made and are paying dividends for the company, although sales of higher margin discretionary products could be improved upon.

Barclays (NYSE:BCS) noted, "Walgreen's numerous initiatives to become a more efficient and profitable retailer have paid off handsomely in the latest quarter. Better management of front-end promotions and merchandising, combined with improved procurement, led to a healthy rise in the gross margin. In addition, the company was able to manage expenses very well, in part because of the success of its major cost-cutting program. There are still challenges for 2011, including fewer new generic introductions, continuing weakness in sales of high-margin discretionary items, an uncertain cough/cold/flu season, changes in pharmacy reimbursement rates, and the potential implementation of AMP in state Medicaid programs.

"We are maintaining our 2Q11 EPS estimate of $0.78 but raising our FY11 estimate to $2.65 from $2.47, driven by both a higher gross margin and lower core expenses. We are also raising our FY12 estimate to $3.12 from $2.86."

Barclays maintains an "Equalweight" on Walgreen, which last closed at $39.19, up $0.34, or 0.88 percent. Barclays raised their price target on them from $31 to $39.

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