Walgreen Company (WAG) posted third quarter fiscal 2010 earnings per share of $0.47, lower than the Zacks Consensus Estimate of $0.57 and year-ago quarter s $0.53. Walgreen’s strategy of store expansion coupled with operating acumen has made the company a leader in the retail drug store industry.
However, we are concerned about the competitive pressures faced by the company due to prescription reimbursement issues and slow introduction of new generic products. Moreover, our apprehensions are further bolstered by factors like higher SG&A expenses, a shift towards the low-margin pharmacy business as well as gross margins reflecting a downward trend.
Based on these factors, we have lowered our estimates for fiscal 2011 and downgrade the stock to Underperform with a target price of $26.00.