Lazard analyst starts Walgreen shares at 'Buy'

A Lazard Capital Markets analyst initiated coverage of Walgreen Co. with a "Buy" rating, saying Monday that changes in corporate strategy are only beginning to pay off.

Analyst Tom Gallucci sees Walgreen as a safe pick in a time of market volatility, and said the company will benefit from new generic drugs.

Walgreen, of Deerfield, Ill., is the largest drugstore chain in the U.S., with about 7,500 stores around the country. It is in the process of changing the layout of thousands of stores, simplifying the range of products it carries, and slowing store growth. Last month it acquired Duane Reade Holdings, making it the largest drugstore chain in the New York City area.

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Generic versions of billion-selling drugs like the cholesterol medication Lipitor will reach the market in the next few years. Sales of the low-cost but highly profitable medications are expected to boost profits at drugstore chains.

In 2011 and 2012 alone, six drugs with annual sales of more than $1 billion will lose patent protection in the U.S.

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Gallucci said Walgreen stock is trading at a reasonable price. He set a target of $42 per share, believing the shares will rise 20 percent over the next year. The stock has traded between $40.69 and $27.89 over the last year, and last reached $42 in October 2007.

Gallucci expects a profit of $2.20 per share in fiscal 2010, with $67.98 billion in revenue. On average, Thomson Reuters says analysts are looking for $2.27 per share and $67.21 billion in revenue.

In midday trading, Walgreen stock rose 66 cents to $35.53.