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WAG: Lehman Downgrades Walgreen, but Raises Price Target

Lehman Brothers

took the unusual two-step of downgrading retailer



, while lifting its target price on the stock.

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Analyst Meredith Adler today cut Walgreen to outperform from buy, but raised the stock's target price 15.8% to 44. The previous target was 34.

Adler's commentary was largely positive, saying the drugstore chain "offered stable, high-teen EPS growth" and "carries little or no risk from the economy, higher fuel prices or currency issues." But she expressed concern about the stock's valuation, saying it trades at a very high multiple of 49.1 times Lehman's 2000 estimate and 41.2 times its 2001 EPS estimate.

The downgrade is based on the stock's valuation, while the target price reflects a "high, but realistic, calendarized 2002 P/E of 39.2x."

Explaining the reasoning for lifting the target price, Adler said, "Earnings-per-share (EPS), will grow faster than the stock will go up, so the multiple will go down."

Lehman also lowered its 2001 EPS estimate to 86 cents from 87 cents, to reflect a new growth rate of 17.4%.

Walgreen was lately off 38 cents, or 1%, to $37.63.