NEW YORK (TheStreet) -- Shares of Walgreen Co. (WAG) are climbing, higher by 0.22% to $68.74 in early market trading on Wednesday, after the drug retailer had coverage initiated this morning by analysts at Citigroup with a "buy" rating and a price target of $80 on shares, citing a positive 2016 outlook.
Analysts at the firm believe that given low investor expectations, investor confidence in the company's ability to achieve its fiscal 2016 targets could increase if the company achieves its $3.40 fiscal 2015 EPS estimate.
Citigroup added that, "despite likely investor skepticism due to recent misses and the downward revision to the fiscal 2016 target in August, we believe the company's 2016 targets are achievable and possibly conservative."
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The firm noted that it believes further stock upside remains as the growth prospects do not appear to be fully appreciated in the share price.
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