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Walgreen Looks to Start New Streak

Walgreen is set to report its fiscal fourth-quarter results before Tuesday's opening bell, and Wall Street is looking for earnings of 44 cents a share.



) --

Walgreen Co.


is set to report its fiscal fourth-quarter results before Tuesday's opening bell, and Wall Street will be watching to see if the Deerfield, Ill.-based pharmacy operator can bounce back after falling short of expectations the past two times around.

The average estimate of analysts polled by

Thomson Reuters

is for earnings of 44 cents a share in the August period. Because it reports its sales on a monthly basis, the

quarter's total

of $16.89 billion was disclosed on Sept. 3. In the same period a year earlier, Walgreen earned $436 million, or 44 cents a share, on sales of $15.7 billion. The company missed by 4 cents with its third-quarter results back on June 22, and acknowledged its performance had fallen short.

"We anticipated this would be a challenging quarter for several reasons, including the sluggish economy, prescription reimbursement pressure compounded by a slowdown in the rate of introduction of new generics, and a lower incidence of flu compared with the beginning of the H1N1 pandemic a year ago," said Greg Wasson, the company's president and CEO, at the time. "While we saw a number of positive signs in the quarter and reached several important milestones, we also realize there is more to be done."

The stock slumped in the wake of the third-quarter report, bottoming out at its 52-week low of $26.26 on July 2. It's battled back of late, however, and closed Monday down a penny at $30.35 -- up 16% from that low -- but still down 17% so far in 2010. The stock's finish above $30 on Friday was its first since July 23, and represented a convincing move above its 50-day moving average of $28.44.

Wall Street sentiment is split down the middle ahead of the release. Of the 24 analysts covering the stock, 5 are at strong buy, 7 are at buy, 10 are at hold, 1 is at underperform and 1 says sell.

Barrington Research, one of the bulls, reiterated an outperform

strong buy rating on Monday, saying it expects Walgreen to deliver a profit of 45 cents a share, beating the consensus by a penny.

"While last quarter's earnings were below expectations, we found the interim EPS results acceptable as we continue to see the company making progress in its transition from a new store expansion model to one that produces higher returns for shareholders in the form of margin expansion and higher free cash flow," the firm said. "We are encouraged by the performance of the remodeled stores, both the initial pilots as well as the next phase stores that are also performing above average."

Walgreen completed its acquisition of Duane Reade in April, and the deal drove down the bottomline in the third quarter with acquisition-related costs of 2 cents a share. Barrington is looking for the company to become more efficient next year.

"We anticipate improvement in operating margin throughout 2011 that should provide a catalyst to a higher valuation as investor confidence improves," the firm said, noting that its 12-month price target of $46 assumes the stock can trade at a normalized price-to-earnings multiple of 17X its fiscal 2011 estimate for a profit of $2.70 a share.

Rite Aid will hold its conference call at 8:30 AM ET.


Written by Michael Baron in New York.

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Michael Baron


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