Options Trade – Walgreen Company (NYSE:WAG) Calls 
Monday, March 24, 2014

**OPTIONS TRADE: Buy the WAG Jul 2014 70.000 call (WAG140719C00070000) at or under $1.80, good for the day. Place a protective stop limit at $0.70 and a pre-determined sell at $3.60.

by Ian Harvey

March 24, 2014


Drug store chain Walgreen Company (NYSE: WAG), reports its fiscal second quarter results before the market opens on March 25. Analysts have forecast WAG to report FY 2014 second-quarter EPS of 83 cents on revenue of $19.62 billion, compared with a profit of 79 cents a share on revenue of $18.65 billion in the year-ago period. Walgreen Co. is trading at around $66.60 a share. In the past 12 months, the stock has gained 44.6 percent. The stock has started the year strongly, gaining 16.9% year to date.

WAG stock has enjoyed strong gains this year, in no small part due to the fact that its main competitor CVS Corp. (CVS) announced in early February that it was exiting the tobacco business, which could in turn lead to higher traffic at Walgreen stores. The company also announced higher sales for both January and February. Its January sales were up 3.7%, and February sales increased 4.5% year over year.

Company Details

Walgreen (WAG) is the next dominant player in the pharmaceutical industry, with 74 million active members. WAG has a leadership in immunization, and it has partnership with the UN. All of these initiatives help WAG to produce strong and stable cash flows. WAG's long-term strategic relationship with Alliance Boots & AmerisourceBergen is a source of strength.

Positive Aspects

• Walgreen is a leader in pharmacy healthcare, with strong fundamentals. Its strong financial performance, competitive position and its dynamic approach makes for good long-term investments.

• Walgreen compared to the industry shows it is above-average performance, superior margins and better returns.

• Walgreen’s business tends to be generally unaffected by the economic downturn, that allows them to produce strong cash flow and consistently increase their dividends.

Analysts Opinions

In a report published Wednesday last week, Morgan Stanley analyst Ricky R. Goldwasser reiterated an Overweight rating on Walgreen Company, but removed the $68.00 price target.

In the report, Morgan Stanley noted, “WAG shares up 17% since January and holding on to gains March to-date, heading into what is likely to be soft earnings as investors focus on LT opportunities. Key to share performance will be mgmt commentary regarding synergies, timing of step 2 of AB deal, and strategic direction.”


The consensus estimate for the quarter calls for earnings of $0.93 per share, but the rumored number is a bit higher at $0.95. It is believed that with WAG's positive January and February sales results there should not be any downside earnings surprises for the quarter.

Therefore, based on the facts above the following options trade is recommended…..

**OPTIONS TRADE: Buy the WAG Jul 2014 70.000 call (WAG140719C00070000) at or under $1.80, good for the day. Place a protective stop limit at $0.70 and a pre-determined sell at $3.60.

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