NEW YORK (TheStreet) -- Shares of Walgreen Co. (WAG) are up 3.70% to $69.95 after it was reported that Alliance Boots, which runs Europe's largest pharmacy chain, could be wholly owned by the biggest U.S. drug-store chain within eight months, according to the Telegraph.
Walgreen now holds a 45% stake and has an option to buy the remaining 55% between February and August next year.
However, Walgreen hopes to move sooner in a takeover valuing Boots at around 10.5 billion pounds, the Telegraph said.
The deal is attractive to Walgreen because it would enable the business to move its tax domicile to either the U.K. or Switzerland, making annual savings of billions of dollars.
The drug giant is reportedly accelerating the full takeover option following pressure from a numberl of activist hedge fund investors, including the Och Ziff (OZM), Jana Partners and Corvex, who have amassed a 5% stake in Alliance Boots in recent months.
TheStreet Ratings team rates WALGREEN CO as a Buy with a ratings score of A. TheStreet Ratings Team has this to say about their recommendation:
"We rate WALGREEN CO (WAG) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, solid stock price performance, largely solid financial position with reasonable debt levels by most measures and notable return on equity. We feel these strengths outweigh the fact that the company shows weak operating cash flow."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The revenue growth came in higher than the industry average of 6.5%. Since the same quarter one year prior, revenues slightly increased by 5.1%. 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.
- WALGREEN CO' earnings per share from the most recent quarter came in slightly below the year earlier quarter. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, WALGREEN CO increased its bottom line by earning $2.56 versus $2.42 in the prior year. This year, the market expects an improvement in earnings ($3.45 versus $2.56).
- Compared to its closing price of one year ago, WAG's share price has jumped by 36.13%, exceeding the performance of the broader market during that same time frame. We feel that the stock's sharp appreciation over the last year has driven it to a price level which is now somewhat expensive compared to the rest of its industry. The other strengths this company shows, however, justify the higher price levels.
- WAG's debt-to-equity ratio is very low at 0.24 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 0.54, displays a potential problem in covering short-term cash needs.
- The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. When compared to other companies in the Food & Staples Retailing industry and the overall market, WALGREEN CO's return on equity is below that of both the industry average and the S&P 500.
- You can view the full analysis from the report here: WAG Ratings Report