Drugstore and convenience shop chain Walgreen (NYSE:WAG) will report third-quarter 2007 financial results on Monday, June 25.

What analysts say:

  • Buy, sell, or waffle? Analysts think Walgreen will be in the green again, with 15 of the 23 Wall Street walkers saying buy. Those other eight say hold.
  • Revenue. Sales are expected to climb 13% further into record territory in the quarter, to $13.8 billion.
  • Earnings. Similarly, profits are expected to grow 15% to $0.53 per share.

What management says:
Walgreen is one of a small cadre of companies that doesn't host quarterly conference calls, but it's been letting its performance do the talking. Prescription sales, which drive nearly two-thirds of the drugstore's revenues, grew 11% last quarter, with same-store pharmacy sales up more than 6%. It was able to achieve that growth despite a milder winter, which meant fewer instances of the flu. President and CEO Jeffrey Rein noted that Walgreen's prescription sales remain the hot growth injection that keeps the company ahead of the competition: "Our growth in retail prescriptions filled in the quarter continued to outpace the growth in both the retail pharmacy and mail service pharmacy industries."

What management does:
Walgreen faces a new competitive landscape now that CVS (NYSE:CVS) has tied the knot with Caremark to create a big pharmacy/managed care conglomerate. Last month, it reported strong comps like Walgreen has been doing, with pharmacy growing nearly 8% in the quarter. Walgreen also has to contend with Wal-Mart (NYSE:WMT) muscling its way further into the lab coats of the industry by adding health clinics to its stores and offering super-cheap generic drugs. Regional players like Longs Drug Stores (NYSE:LDG) can also prove irritating in a local market like the West Coast, where it has thrived for 50 years.

Margin

02/06

05/06

08/006

11/06

02/07

Gross

28%

27.9%

27.8%

27.9%

28.1%

Operating

5.7%

5.7%

5.9%

6%

6.2%

Net

3.6%

3.6%

3.7%

3.7%

3.9%
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
Peter Lynch has been one to advocate investing in what you know by analyzing companies with which you regularly do business. Yet for as long as I've gotten my prescriptions filled at Walgreen stores, I've shunned it as an investment. There's also the old saw that "familiarity breeds contempt." While I haven't quite held Walgreen in contempt, neither have I viewed it as investment-worthy because of bias created by my local store. That's been my loss, because over the past 10 years, Walgreen has more than quadrupled -- not to mention returning about a 16% compounded annual growth rate over that time.

Yet is Walgreen still that same good buy as it was a decade ago? Its stock sits just about where it was this time last year, though it trades at a slight premium to CVS on a forward valuation -- but at 11 times EBITDA (earnings before interest, taxes, depreciation and amortization), it trades at a discount to it. What needs to be seen is how Wal-Mart's presence will affect business. The pharmacy-retail combo at Walgreen has been operating soundly and profitably, but tighter competition could begin to rein in margins going forward.

Related Foolishness:

Walgreen has earned a four-star rating from Motley Fool CAPS, the new investor intelligence community. You can add your voice to the new stock rating service by joining today. It's free!

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Fool contributor Rich Duprey owns shares of Wal-Mart but does not have a financial position in any of the other stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.