Thursday, 28 August 2014

Walgreen (WAG) ... medicinal grief?

Thursday 28th August 2014

I've bought a few $60 September Puts for 83 cents in the drugstore retailer, Walgreen (WAG, mkt cap $58bn). I reckon this decent value for a stock which looks a bit iffy. 

I happened to notice that WAG's CFO, Mr Wade Miquelon, recently walked, seemingly for over-guiding 2016 prospective EBIT by a hefty $1.1bn or c.16%. How one manages to make an error on that scale I do not know, but it's usually a precursor to matters getting worse before they get better; something is often going on in the background.

My target is $55 on a two to three week basis. Technically that would coincide with down channel support. The fact that WAG has gapped down on a grand scale through its 200 day moving average does also not bode well. Indeed the chart to me looks like it's setting up for a second service roll over.

Valuation wise WAG is still on a punchy 16.3x forward earnings; earnings which are still being downgraded. Indeed, WAG's historical forward P/E rating has typically been sub 14x in the six years prior to Q4 2013.

September $60 Puts at 83 cents ... could be a nice little 9/2 bet.

Walgreen - share price
Source: Bloomberg
Walgreen - longer term share price
Source: Bloomberg
Walgreen - consensus earnings downgraded
Source: Bloomberg
Walgreen - forward P/E and EV/EBITDA multiple
Source: Bloomberg
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