Walgreen Company reported its first quarter FY2015 results on December 23rd, which also confirmed the imminent retirement of CEO Greg Wasson. The report beat analyst estimates and highlighted the pending transaction with Alliance Boots.

The pharmaceutical company posted GAAP earnings per diluted share of $0.85; an 18% year-over-year increase and above the analyst estimate of $0.72. Sales increased 6.7% to a record $19.6 billion. Adjusted gross profit increased 2.3% year-over-year, though profit from pharmaceuticals was negatively impacted by “lower third-party reimbursement and generic drug price inflation.” This did not come as a surprise and was slightly offset by “an increase in the brand-to-generic drug conversions.”

The report confirmed that CEO Greg Wasson will be retiring after 35 years with Walgreen once the merge with Alliance Boots in completed, which is expected to close on December 31st. Walgreen spent $6.7 billion in June of 2012 to purchase 45% of Alliance Boots; a European drugstore chain. The deal was the largest purchase ever made by Walgreen. Walgreen plans to buy the remaining 55% of Alliance Boots pending shareholder approval. The transaction will create a new holding under the name of Walgreens Boots Alliance Inc., operating under the NASDAQ ticker WBA.

According to the Q1 FY2015 report, Alliance Boots already contributed $0.11 per diluted share to Walgreen in the quarter’s adjusted earnings per share. The report added, “The combined synergies for Walgreen and Alliance Boots in the first quarter were approximately $140 million and remain on track to reach at least $650 million in fiscal 2015.”

On December 23rd, analyst George Hill of Deutsche Bank maintained a Buy rating on Walgreens and raised his price target from $69 to $82. Hill commented that “gross margins came in weaker than expected on continued pharmacy reimbursement pressure” but “Walgreen is expecting to see some relief from payers with respect to generic inflation. Management also remains focused on targeting discretionary costs at the corporate level.” The analyst added, “We see potential for earnings estimates to increase if management has overestimated the long-term margin pressure or increases cost savings.”

Hill has a 79% overall success rate recommending stocks with a +7.9% average return per recommendation.

Walgreen

Separately on December 23, analyst Robert Willoughby of Bank of America Merrill Lynch maintained a Neutral rating on Walgreen and raised his price target to $75. Willoughby is apprehensive about the Alliance Boots acquisition, noting that the buyout may result in slow-growing profits. He is uncertain about the merger’s “capital efficiency” because it is a “vastly… complex strategy.” Willby concluded, “We’re less convinced of the sustainable competitive advantage it creates” particularly in the U.S.”

Willoughby has an 83% overall success rate recommending stocks with an average return of +17.4% per recommendation.

Walgreen

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Sarah Roden writes about stock market news. She can be reached at [email protected]