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
Disclaimer: The information, discussions or topics referred to on this blog should in no way be considered “advice” to buy or sell anything. The information which may be referred to is freely available in the public domain and where required the source of information is referenced to for verification. While every effort has been made to ensure the veracity of any information contained within this blog, the author accepts no responsibility for the accuracy of any information contained within this blog or for the sources of information which may be referred to. Readers are responsible for their own actions and interpretation of the information contained within this blog. 

No comments:

Post a Comment