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Sept 30 (Reuters) - Jefferies & Co cut its price target on Walgreen Co WAG.N to $33 from $35 and said it expects the U.S. drugstore chain to continue to struggle with a sales slowdown and margin pressure.
The brokerage said increased promotional activity in the front end, drag from the specialty business and expense de-leveraging are weighing on the company, which has more drug stores than any other U.S. chain.
“Walgreen will continue to be under pressure especially in first half of 2009, as we see insufficient company-specific drivers to overcome a challenging environment,” analyst Scott Mushkin wrote in a note to clients.
The analyst also said that Walgreen’s pursuit of an acquisition of Longs Drug Stores Corp LDG.N appeared defensive in nature and could be a distraction.
Walgreen’s chief executive officer on Monday said the company was committed to its unsolicited bid for Longs Drug Stores, which has already accepted an offer from rival CVS Caremark Corp (CVS.N).
Analyst Mushkin said, “Given the various headwinds... we would like to see management call off the Longs effort and remain focused, especially given the high potential for regulatory issues and probable lengthy time to close a deal — if one can be reached.”
Management focus could be better utilized on turning the core retail business and fixing the specialty assets, said Mushkin, who has a “hold” rating on Walgreen stock.
Shares of Walgreen closed at $31 Monday on the New York Stock Exchange. (Reporting by Dilipp S. Nag in Bangalore; Editing by Himani Sarkar)