Walgreen Company Stock Buy Recommendation Reiterated (WAG)

Editor's Note: TheStreet ratings do not represent the views of TheStreet's staff or its contributors. Ratings are established by computer based on metrics for performance (which includes growth, stock performance, efficiency and valuation) and risk (volatility and solvency). Companies with poor cash flow or high debt levels tend to earn lower ratings in our model.

NEW YORK ( TheStreet) -- Walgreen Company (NYSE: WAG) has been reiterated by TheStreet Ratings as a buy with a ratings score of B- . The company's strengths can be seen in multiple areas, such as its good cash flow from operations and largely solid financial position with reasonable debt levels by most measures. We feel these strengths outweigh the fact that the company has had sub par growth in net income.

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Highlights from the ratings report include:
  • Net operating cash flow has significantly increased by 112.15% to $768.00 million when compared to the same quarter last year. In addition, WALGREEN CO has also vastly surpassed the industry average cash flow growth rate of -17.09%.
  • The current debt-to-equity ratio, 0.30, is low and is below the industry average, implying that there has been successful management of debt levels. Even though the company has a strong debt-to-equity ratio, the quick ratio of 0.40 is very weak and demonstrates a lack of ability to pay short-term obligations.
  • WALGREEN CO has exprienced 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 year. However, we anticipate this trend reversing over the coming year. During the past fiscal year, WALGREEN CO reported lower earnings of $2.42 versus $2.94 in the prior year. This year, the market expects an improvement in earnings ($3.40 versus $2.42).
  • WAG, with its decline in revenue, underperformed when compared the industry average of 9.8%. Since the same quarter one year prior, revenues slightly dropped by 5.0%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • The gross profit margin for WALGREEN CO is currently lower than what is desirable, coming in at 30.10%. Regardless of WAG's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 2.10% trails the industry average.

Walgreen Co., together with its subsidiaries, operates a network of drugstores in the United States. It provides consumer goods and services, pharmacy, and health and wellness services through drugstores, as well as through mail, and by telephone and online. Walgreen has a market cap of $30.83 billion and is part of the services sector and retail industry. The company has a P/E ratio of 13.5, below the S&P 500 P/E ratio of 17.7. Shares are down 0.9% year to date as of the close of trading on Monday.

You can view the full Walgreen Ratings Report or get investment ideas from our investment research center.

--Written by a member of TheStreet Ratings Staff.

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