NEW YORK (TheStreet) -- Shares of Walgreen Co. (WAG) are down 0.15% to $60.18 today as the company battles with a defamation lawsuit by former CFO Wade Miquelon, and as the retail drugstore chain is struggling with disappointing earnings, activist hedge funds and a major tax inversion deal, the Wall Street Journal reports.
The suit, which uses emails exchanged between the CFO and CEO to allegedly show the pressure to "goose earnings forecasts and push the envelope on tax policy," led Miquelon to say that the CEO allegedly defamed him in meetings with large shareholders that became the basis of a page-one article in the Journal, the paper reported.
On August 6, Walgreen said it had decided against an inversion, while the company also decreased its profit forecast, reflecting rising costs for generic drugs in plans it negotiated with health plans, according to the Journal.
Separately, TheStreet Ratings team rates WALGREEN CO as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:
"We rate WALGREEN CO (WAG) a BUY. This is driven by a few notable strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, good cash flow from operations, largely solid financial position with reasonable debt levels by most measures and increase in stock price during the past year. We feel these strengths outweigh the fact that the company has had sub par growth in net income."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- WAG's revenue growth has slightly outpaced the industry average of 2.9%. Since the same quarter one year prior, revenues slightly increased by 6.2%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
- Net operating cash flow has increased to $1,384.00 million or 23.24% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -15.31%.
- WAG's debt-to-equity ratio is very low at 0.22 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Despite the fact that WAG's debt-to-equity ratio is low, the quick ratio, which is currently 0.66, displays a potential problem in covering short-term cash needs.
- WALGREEN CO has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. The company has suffered a declining pattern of earnings per share over the past two years. However, we anticipate this trend to reverse over the coming year. During the past fiscal year, WALGREEN CO reported lower earnings of $2.00 versus $2.56 in the prior year. This year, the market expects an improvement in earnings ($3.59 versus $2.00).
- After a year of stock price fluctuations, the net result is that WAG's price has not changed very much. Although its weak earnings growth may have played a role in this flat result, don't lose sight of the fact that the performance of the overall market, as measured by the S&P 500 Index, was essentially similar. Looking ahead, the stock's rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry. We feel, however, that the other strengths this company displays justify these higher price levels.
- You can view the full analysis from the report here: WAG Ratings Report