WAG Calls: Is Walgreen Company Still a Top Performer for 2015?

It is another beautiful day and I think it is not out of place to place a couple of options trades today and even tomorrow before we take a break from trading stock options on Christmas day. Today, we will reexamine the options of Walgreen Company (NYSE:WAG).

Walgreens with its market capitalization of $72.16B together with its subsidiaries operates as a retail drugstore chain in the United States. The Company provides its customers with access to consumer goods and services, pharmacy, and health and wellness services in communities across America. The Company offers its products and services through drugstores, as well as through mail, by telephone and online. The Company sells prescription and non-prescription drugs, as well as general merchandise products.

Walgreens is No Stranger

We have had coverage on Walgreens a number of times on this site and it is expedient that we look back at our previous coverage of the stock. In April, I wrote about Walgreens when the company emerged as the third best performing stock in the S&P 500. In that piece, I talked about Walgreen’s commitment to forging an effective global platform, strategic collaborative agreements to provide improved access to healthcare and its laser focus on the immunization market.

In that piece, I recommended that you buy WAG call options and I gave the stock a $70 price target by January 2015. As at 3:13PM EST today, shares of Walgreen have gained 3.10% to $76.57 per share to mark a 9.38% premium to my $70 price target. More interesting is the fact that the stock made a new 52-week high of $77.22 in today’s session to mark a 39.71% premium to its 52-week low of $55.27.

Why Did Walgreen Soar Today?

The impressive gains reported in the shares of Walgreens today can be linked to the outstanding fiscal first quarter 2015 (Q1 2015) earnings that the company reported today. Highlights of the earnings release are presented below:

Walgreens reported profit of $809 million, or 85 cents a share, compared with a profit of $695 million, or 72 cents a share, in the prior-year period

Excluding one-time items, per-share earnings were $0.81, compared with $0.72 from the same period last year

Revenue improved 6.7% to $19.6 billion to beat the analysts’ consensus estimate of $19.5 billion

Cost control limits adjusted selling, general and administrative expense dollar increase to 1.7 percent; GAAP SG&A dollar growth increases 1.8 percent

The company reported that it generated free cash flow of $696 million in the quarter

The second phase of the strategic transaction with Alliance Boots is anticipated to close Dec. 31, subject to shareholder approval

What to Expect from Walgreens Going Forward

I am impressed by the strong trend that the company reported in its pharmacy sector as it mentioned that customers filled a record 222 million prescriptions, to mark a 4.3 increase from the same period last year. More so, pharmacy sales accounted for about two-thirds of revenue in the quarter. I recommend buying call options and I am particularly interested in the WAG Apr 2015 77.500 call (WAG150417C00077500) at an asking price of $3.20. This effectively sets an $80 price target for Walgreen in the next four months.

— Daily Option Alerts

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