Walgreen Company (WAG), Rite Aid Corporation (RAD): This Drug Store’s Rally Is Far from Over

Walgreen’s comparable store sales increase of 2% compares to Rite Aid Corporation (NYSE:RAD)’s decline of 1.5% in May. Likewise, CVS Caremark Corporation (NYSE:CVS)’s same-store pharmacy sales fell by 2.3% in the most recent quarter. CVS Caremark Corporation (NYSE:CVS)’s most recent quarterly earnings rose 23% to $956 million, compared to last year’s $776 million.

On the other hand, Rite Aid Corporation (NYSE:RAD)’s earnings per share grew by 400% from last year when the company reported a loss of $0.03 to $0.09. The company’s earnings were in line with expectations, while revenues beat analyst estimates marginally by about 20 million. Rite Aid Corporation (NYSE:RAD) reported $6.29 billion worth of revenues in the most recent quarter.

Valuation

At $44.46 per share, Walgreen currently trades 19.45 times in price to earnings ratio (P/E). This is slightly above CVS Caremark Corporation (NYSE:CVS)’s 18.22 and Rite Aid Corporation (NYSE:RAD)’s 11.28. When we factor in the projected earnings growth rates for the next five years, however, Walgreen is not as expensive as it seems.

The company trades at 1.08 times its price to earnings growth ratio (PEG), compared to Rite Aid’s 2.24. CVS Caremark Corporation (NYSE:CVS) seems to be a little cheaper, trading at 1.05 times PEG. This indicates that the company’s recent plunge has resulted into significant underpricing while its outlook remains promising.

The bottom line

It is a common behavior that when a company misses analyst estimates on earnings, the company’s stock suffers. It is also common that in most cases the fall is temporary, especially for a company with a bright outlook. Walgreen is certainly a company with a price that is suffering just because of missing analysts’ estimates on profits.

The company is up 16% year-to-date, and more than 50% from twelve months ago. Has this rally ended following the recent decline? I do not think so, especially given the company’s huge market share and recent partnerships.

The article This Drug Store’s Rally Is Far from Over originally appeared on Fool.com and is written by Nicholas Kitonyi.

Nicholas Kitonyi has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Nicholas is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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