With shares of Walgreen (NYSE:WAG) trading around $49, is WAG an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let's analyze the stock with the relevant sections of our CHEAT SHEET investing framework:
T = Trends for a Stock’s Movement
Walgreen operates a 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. Walgreen sells prescription and non-prescription drugs, as well as general merchandise, including household items, convenience and fresh foods, photofinishing, and candy. General convenience and wellness merchandise is important to consumers across the nation. Walgreen is a go-to shop for a quick and efficient general merchandise, health, and wellness experience for consumers that should continue well into the future.
T = Technicals on the Stock Chart are Strong
Walgreen stock has seen a consistent uptrend over the last several months. The stock is now trading at the top-end of a multi-year range so a breakout to all-time highs may be imminent. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Walgreen is trading slightly above its rising key averages which signal neutral to bullish price action in the near-term.
(Source: Thinkorswim)
Taking a look at the implied volatility (red) and implied volatility skew levels of Walgreen options may help determine if investors are bullish, neutral, or bearish.
| Implied Volatility (IV) | 30-Day IV Percentile | 90-Day IV Percentile | |
| Walgreen Options | 32.68% | 90% | 89% |
What does this mean? This means that investors or traders are buying a very significant amount of call and put options contracts, as compared to the last 30 and 90 trading days.
| Put IV Skew | Call IV Skew | |
| July Options | Flat | Average |
| August Options | Flat | Average |
As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a very significant amount of call and put option contracts and are leaning neutral to bullish over the next two months.
On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.
E = Earnings Are Decreasing Quarter-Over-Quarter
Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Walgreen’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Walgreen look like and more importantly, how did the markets like these numbers?
| 2012 Q4 | 2012 Q3 | 2012 Q2 | 2012 Q1 | |
| Earnings Growth (Y-O-Y) | 1.28% | -31.75% | -54.65% | -4.62% |
| Revenue Growth (Y-O-Y) | -0.02% | -4.63% | -4.98% | -3.37% |
| Earnings Reaction | 5.44% | -3.3% | -0.43% | -5.85% |
Walgreen has seen decreasing earnings and revenue figures over the last four quarters. From these numbers, the markets have been disappointed with Walgreen’s recent earnings announcements.
P = Excellent Relative Performance Versus Peers and Sector
How has Walgreen stock done relative to its peers, CVS Caremark (NYSE:CVS), Rite Aid (NYSE:RAD), Wal-Mart (NYSE:WMT), and sector?
| Walgreen | CVS Caremark | Rite Aid | Wal-Mart | Sector | |
| Year-to-Date Return | 33.69% | 21.32% | 122.4% | 9.69% | 15.32% |
Walgreen has been a relative performance leader, year-to-date.
Conclusion
Walgreen provides health and wellness products, a pharmacy, and general products required by many consumers across the nation. The stock has been on a path towards higher prices in recent years that has taken it to the top-end of a multi-year range. Over the last four quarters, earnings and revenue figures have been on the decline which has disappointed investors in the company. Relative to its peers and sector, Walgreen has been a year-to-date performance leader. WAIT AND SEE what Walgreen does at these prices.
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