Walgreens Stock Gets Lofty Price Target Ahead Of Earnings

The drug store giant reports earnings Thursday morning

Managing Editor
Oct 8, 2018 at 9:04 AM
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The shares of Walgreens Boots Alliance Inc (NASDAQ:WBA) are pointed 0.6% higher in electronic trading, after RBC upped its price target on the Dow member to $82 from $68. The new price target is an area WBA has not traded at in over a year, and is a 13% premium from Friday's close of $72.51. Later this week, the drug store chain will report fourth quarter earnings before the open on Oct. 11. 

Looking at Walgreens earnings history, the security closed higher the day after reporting in five of the last eight quarters, but dropped 9.9% following the most recent quarterly report in late June. Looking back further, the shares have averaged a slim 3.1% move the day after earnings over the last two years, regardless of direction. This time around, however, options traders have priced in a 4.7% swing for Friday's trading.

On the charts, the stock rallied hard off those earnings-induced late-June lows near $59, trading up toward the $75 level by late September. Pullbacks during this time frame were contained by the shares' 40-day moving average. And should today's positive price action pan out, the equity will be back above its year-to-date breakeven level. 

Despite the bull note today, analysts for the most part remain skeptical of the new Dow stock. Of the 16 brokerages covering the security, 14 rate it a "hold" or "sell." Furthermore, the stock's consensus 12-month price target of $73.61 sits just above last week's closing perch. 

In the options pits, traders have been less call-skewed toward the stock. Data from the (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows a 50-day put/call volume ratio of 0.98. While this ratio indicates calls have outnumbered puts on an absolute basis in the past two weeks, it registers in the 98th percentile of its annual range, suggesting option buyers have picked up bearish bets over bullish at a faster-than-usual clip in the past two months.

Echoing this is the security's Schaeffer's put/call open interest ratio (SOIR) of 0.72, ranking in the 75th percentile of its annual range. In other words, call open interest outweighs put open interest by a smaller-than-usual margin.

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