Zacks Analyst Blog Highlights: Walgreen Company, Wal-Mart, HEICO Corp., American Airlines and King Pharmaceuticals

CHICAGO--(BUSINESS WIRE)--Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Walgreen Company (NYSE: WAG), Wal-Mart (NYSE: WMT), HEICO Corp. (NYSE: HEI), American Airlines (NYSE: AMR) and King Pharmaceuticals, Inc. (NYSE: KG).

See the latest posts to the Analyst Blog: http://www.zacks.com/blog/post_info.html?g=6

Here are highlights from Wednesday’s Analyst Blog:

Walgreen Feels Wal-Mart Pressure

While maintaining a pristine balance sheet, management continues Walgreen's (NYSE: WAG) new store expansion strategy. However, beginning in 2006, management began implementing a more aggressive strategy that includes acquisitions.

In addition, pharmacy profits are being pressured due to lower reimbursements on some generic drugs and additional pricing pressure from Wal-Mart (NYSE: WMT), which has entered the retail generic marketplace. In response, management is trying to better utilize the existing store space and drive increased customer traffic through its stores by offering new services like convenient care clinics.

The Hold rating on Walgreen Company is maintained. Walgreen's is currently selling at 17.0 times trailing 12-month EPS. Having declined from an unsustainable 60 P/E in late 2000, the stock settled in the 22 to 34 multiple range for four fiscal years (FY2003 through FY2006). However, when Wal-Mart aggressively entered the marketplace, Walgreen's P/E multiple was compressed to the 21 to 24 range.

Then, following the disappointing earnings report of the fiscal fourth quarter of fiscal 2007, the stock subsequently traded down to a 16 P/E. The target price of $38.75 is based on an 18.5 P/E on trailing 12-month earnings.

Neutral on Small-Cap HEICO

Maintenance, repair and overhaul (MRO) of both commercial and military equipment is at a heightened level because of increased usage, which engenders a vibrant aftermarket. In addition, rising fuel costs are forcing the airlines to find ways to cut other expenses. Both of these drivers offer significant opportunities for HEICO Corp. (NYSE: HEI) to expand and flourish.

However, while robust levels of revenues and income are envisioned for HEI over the balance of the decade, we believe that HEI is close to fairly valued at current levels, and therefore have maintained our strong HOLD opinion. Aside from original equipment manufacturers (OEM) and their subcontractors/suppliers, HEICO purportedly is the world's largest independent manufacturer of jet engine and aircraft component replacement parts approved for use by the Federal Aviation Administration (FAA).

HEI has the highest P/E ratio and the highest PEG ratio of the aerospace/defense supplier group. One of the reasons that investors are willing to pay up for HEI may be that (at least) two of its principal clients Lufthansa and American Airlines (NYSE: AMR) have equity investments in the company, which would indicate that HEI has secured some pretty powerful clients. (witness the $76.0 million of Minority Interests on the Balance Sheet).

On the other hand, HEI has a Goodwill-to-Equity ratio of 0.81, which we find bothersome. Further, the current economic malaise may keep even well-positioned stocks like HEI from rising.

King Pharma Can Fall Further

King Pharmaceuticals, Inc. (NYSE: KG) is a vertically integrated pharmaceutical company that focuses on developing and marketing branded prescription pharmaceutical products. Most of the company's key products are either facing increased competition or generic threat. Additionally, we are concerned about declining prescription trends for most of these products.

While King has several candidates in its pipeline, we do not think that these products will be sufficient to compensate for the loss of revenue that will take place with the genericization of key products over the next few years. We believe that generic threat and mounting competition will continue to hinder both top- and bottom-line growth going forward.

As such, we maintain our Sell rating on the stock with a target price of $8. King received a series of disturbing news over the past few months. The U.S. Court of Appeals ruled in favor of Lupin which is seeking to bring a generic version of Altace to market. King's appeal for a rehearing was denied in December 2007 and this resulted in the launch of a generic version of Altace in late 2007. This is devastating news for the company, as Altace contributed about 30% to total revenues in 2007. We expect a sharp decline in Altace sales in 2008.

Get the full analysis of all these stocks by going to http://at.zacks.com/?id=2649.

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