NEW YORK (TheStreet) -- Shares of Walgreen Co. (WAG) are declining, down 0.86% to $67.15 in early market trading on Tuesday, after the retail drugstore chain was downgraded to "neutral" from "buy" with a $72 price target by analysts at Mizuho this morning.
Mizuho lowered its rating on Walgreen based on limited EPS upside and sub-par base business organic growth.
Analysts at the firm also cited the company's execution risk with Alliance Boots due to management turnover, international and currency risk, as well as valuation.
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Deerfield, IL-based Walgreen sells prescription and non-prescription drugs, as well as general merchandise products, including household items, convenience and fresh foods, personal care, beauty care, photofinishing and candy.
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 multiple 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, largely solid financial position with reasonable debt levels by most measures, good cash flow from operations and solid stock price performance. 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 0.9%. 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.
- 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 0.66, displays a potential problem in covering short-term cash needs.
- Net operating cash flow has increased to $1,384.00 million or 23.24% when compared to the same quarter last year. Despite an increase in cash flow, WALGREEN CO's cash flow growth rate is still lower than the industry average growth rate of 49.58%.
- 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 ($3.57 versus $2.00).
- Compared to where it was a year ago today, the stock is now trading at a higher level, regardless of the company's weak earnings results. The stock's price rise over the last year has driven it to a level which is somewhat expensive compared to the rest of its industry. We feel, however, that other strengths this company displays justify these higher price levels.
- You can view the full analysis from the report here: WAG Ratings Report