Walgreen Co.'s fiscal fourth quarter results fell short of some Wall Street expectations, but shares of the nation's largest drugstore chain climbed after Tuesday's report and are trading near the stock's all-time high price. Analysts said optimism is being fueled by a couple big partnerships the company is developing.
The Deerfield, Ill., company said it earned $657 million, or 69 cents per share, in the quarter that ended Aug. 31, as revenue climbed 5 percent to $17.94 billion.
Walgreen reported adjusted earnings of 73 cents per share, excluding acquisition-related costs among other items. But some analysts pegged that total at 70 cents per share by excluding a litigation-related gain. That would put the performance below average Wall Street expectations of 72 cents per share, according to FactSet.
Walgreen shares climbed more than 4 percent after the earnings report came out to close at $56.24 on Tuesday. That put the stock up about 52 percent so far this year. The company's stock had hit an all-time high price of $56.84 on Monday, according to FactSet.
Growing optimism about future benefits from Walgreen deals with European health and beauty retailer Alliance Boots and drug distributor AmerisourceBergen Corp. fueled the stock on Tuesday, Credit Suisse analyst Edward J. Kelly said in a research note.
Last year, Walgreen acquired a stake in Swiss-based Alliance Boots for about $4 billion in cash plus 83.4 million Walgreen shares. Walgreen booked $124 million in equity earnings from that stake in this year's quarter and said it achieved more savings and additional revenue from the partnership than it expected.
Earlier this year, Walgreen said that it also was buying an ownership stake in AmerisourceBergen and entering into a supply agreement with the company.
"While the near-term picture is somewhat troubling, the market is clearly focusing more on 2016 earnings power," said Kelly, who raised his price target on the company's shares to $55 from $45.
Cantor Fitzgerald analyst Ajay Jain said in a separate note that the positive sentiment toward the company is disproportionate to its underlying business fundamentals. He raised his price target on the shares to $50 from $45.
"Increasingly, we feel that investors seem to believe that the cost-cutting magic from Alliance Boots management team will work its way more directly into Walgreen's U.S. operations," Jain wrote.
In premarket trading on Wednesday, Walgreen shares slipped 35 cents to $55.89 with about 30 minutes to go before the market opening.