Earnings Sneak Peek: Is Walgreens (WAG) Ready To Rally?

Earnings Estimates (High/Mean/Low): $0.48 / $0.44 / $0.39

Walgreens (NYSE: WAG) is set to report Q4 earnings this Tuesday before the bell, and as the largest drugstore chain in the country, WAG’s report will certainly be one worth paying attention to.  Expectations are relatively tepid, with mean estimates of $0.44 representing 0% YoY growth and a 13% loss sequentially.  Shares of the Deerfield, IL based company are trading much closer to their 52-week lows than their highs, and while this is never an indication of fiscal strength, it does imply that even a mediocre report may be cause for a move to the upside.

Boosting the potential for such a move is the 2.1% rise in August same-store sales that WAG reported earlier this month, the third straight monthly increase.  WAG contemporaneously reported that it will exchange most of its long-term-care pharmacy business for substantially all of Omnicare Inc.’s home-infusion operations.

WAG boasts a 2.3% dividend and a nice chart.  After free-falling from $37 to $27 over the course of the summer, shares have finally stabilized over the last 10 weeks.  A 3% up-day this past Friday pushed shares just above the breakout point of a cup-base and volume has increased 3 weeks in a row, indicating that institutional money may be getting back behind shares.

Risk/reward here is relatively favorable, as downside risk appears limited, while a better-than-expected report may push shares towards resistance in the $35-range.  If you’re looking for an earnings-specific strategy, try picking up an Oct 30 straddle for $1.50 or less.

Disclosure: No holdings in WAG.