Walgreen's stock recovered some of its value in premarket trading Thursday, a day after the drugstore chain disappointed investors when it detailed the next step in its Alliance Boots acquisition and dropped its earnings goal for the combined business.
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Shares of the nation's largest drugstore chain lost nearly all the value they had gained in 2014 after the company announced a 2016 earnings range that fell short of analyst expectations and said it would not pursue an overseas reorganization with Europe's Alliance Boots that could have trimmed its U.S. taxes.
Credit Suisse analyst Edward J. Kelly said the company mismanaged investor expectations and then shocked them by setting a new goal of 2016 earnings per share to range between $4.25 to $4.60 while many investors were thinking of more than $6 per share.
"The core underlying U.S. business is clearly challenged, Europe lacks organic growth, and below the line initiatives are not exciting enough in our view," Kelly wrote in a research note.
The company's new earnings target translated to about $7.2 billion in adjusted earnings at the midpoint of the range, which is lower than a previous range of $9 billion to $9.5 billion the company had forecast. Walgreen executives said the lower goal reflected global pharmacy reimbursement pressures.
Walgreen Co. also said it decided not to pull off the overseas reorganization known as an inversion in part because it wasn't confident the deal would pass IRS scrutiny. The company also acknowledged political pressure and the potential for consumer backlash over the move.
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The company's update could be considered "extremely disappointing" at best, Deutsche Bank analyst George Hill said in a research note.
"In short, we believe this guidance would imply an earnings erosion at the underlying business that we are at a loss to explain," he wrote.
The Deerfield, Illinois, company's stock, which had reached several all-time high prices this year, tumbled 14 percent to close at $59.21 on Wednesday. It then climbed more than 2 percent to top $60 Thursday morning before markets opened.
Cantor Fitzgerald analyst Ajay Jain said in a note he thinks the stock is now approaching a fair valuation. Jain upgraded the shares to "hold" from "sell."
"Additionally, we don't see a significant or specific catalyst on the horizon that is likely to pressure the stock in a material way," the analyst wrote.