Has Walgreen Bounced Back for Good?

Next Tuesday, Walgreen (NYSE: WAG  ) will release its latest quarterly results. Amid plenty of news pointing to the company's growth prospects, the stock recently hit all-time highs, but its gains appear to have plateaued over the past several months as investors seek further catalysts for gains.

Walgreen already has an enviably strong position within the drugstore business, and its recent strategic moves aim to broaden its appeal on a global scope. Yet, investors are still concerned about damage that a major dispute might have done to its long-term business prospects. Let's take an early look at what's been happening with Walgreen over the past quarter, and what we're likely to see in its quarterly report.

Stats on Walgreen

Analyst EPS Estimate

$0.91

Change From Year-Ago EPS

26%

Revenue Estimate

$18.44 billion

Change From Year-Ago Revenue

3.9%

Earnings Beats in Past 4 Quarters

3

Source: Yahoo! Finance.

Has Walgreen resolved all its problems?
In recent months, analysts have had narrowly mixed views about Walgreen's earnings prospects. They've cut their May-quarter estimates by $0.01 per share, but they've boosted their fiscal 2014 consensus by the same penny. The stock has made additional gains, rising about 9% since mid-March.

The ongoing long-term concern that many investors have had about Walgreen stems from its dispute last year with pharmacy benefits manager Express Scripts (NASDAQ: ESRX  ) . Following its merger with Medco Health Solutions, Express Scripts became an increasingly important source of business in the industry, and an exodus of customers from Walgreen boosted the prospects for its competitors. Indeed, long-struggling Rite Aid was able to take advantage of the situation to engineer a sharp turnaround, posting an annual profit last year for the first time in six years, and demonstrating just how extensive the damage was to Walgreen's business.

Since resolving that dispute, Walgreen has made a number of smart strategic moves to bolster growth. In March, the company entered into a 10-year agreement with drug distributor AmerisourceBergen that will fit well with its global expansion plans. Walgreen's purchase of a substantial stake in European drugstore chain Alliance Boots created the need for a more extensive distribution network, and by creating what amounts to a vertically integrated supply chain, Walgreen is setting up the infrastructure for further growth overseas.

Preliminary results show decent success with Walgreen's strategy. During April, same-store sales rose 1.2%, with larger gains of 4.7% in pharmacy sales pointing to customers returning to Walgreen's fold. May's increase in comps of 2.8% showed the same tilt toward the pharmacy side of the business. Yet, rival CVS Caremark (NYSE: CVS  ) has also given investors some positive news, guiding earnings and revenue last month to the upper end of previously provided ranges amid favorable impacts of greater generic-drug availability. Despite Walgreen's success, CVS remains a strong competitive threat, especially with its combination of pharmacy benefits management and retail drug stores.

In Walgreen's report, watch for further guidance about the path the company intends to take strategically. By identifying the role its international expansion will play, Walgreen should be able to show shareholders what will further drive share-price gains in the future.

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