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Walgreen's So-So Quarter


I don't think today's results will be any kind of an upside catalyst for WAG.


Editor's note: The following article was written by Brian Gilmartin Chief, CFA, of Trinity Asset Management. It has been reproduced with permission for the benefit of the Minyanville community.

Walgreen (WAG) reported a so-so quarter this morning, missing on both revenues and estimates just slightly, which makes this 2nd fiscal quarter the fifth of the last six quarters where WAG has missed on the top-line, so I'm not sure if it's prescription-related, front-end related (non pharma business) or something else.

Margins declined slightly year-over-year.

The one bright spot to the quarter was cash from operations, and free-cash-flow. Free-cash-flow was the best in about the last two years, thus, the quality of the earnings were quite good.

WAG management is saying that the mild flu season hurt some front-end and prescription traffic, so we'll give them the benefit of the doubt for now.

Goldman Sachs put out a bullish note on WAG and the rest of the retail drug store chains last Friday, saying that later in the year the release of several major generics (a higher margin prescription for WAG and CVS) should help margins.

I thought the earnings report today would help WAG bust out of this trading range consolidation below the all-time high of $49, but I don't think today's results will be any kind of an upside catalyst for WAG.

WAG will end the calendar first quarter of '06 about flat on the year, versus a 4%-5% return on the SP 500 assuming no big market moves before Friday.

Brian Gilmartin, CFA, portfolio manager, started Trinity Asset Management 11 years ago to cater to high net worth individuals. He manages balanced accounts for individuals, using a growth bias for the equity allocations of individual portfolios. Prior to starting Trinity Asset Management, Brian was a fixed-income analyst on both the buy and sell sides of the Street.


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