Walgreen’s (WAG: chart, web, Y!) earnings came out today and they ended up beating Street estimates by 2 cents, and second quarter sales increased by 10.5% on comparable-store sales growth of 4.7%.

While the EPS was up, it didn’t match the sales growth, increasing just 6.5%.

So what’s the beef?

Walgreen’s earnings are commendable, but the fact that earnings aren’t out-growing sales leads me to believe margins are tightening. In fact, gross margins were down 14 basis points for a variety of reasons including mix shift and softer seasonal sales.

Expenses were up 11 basis points as a percentage of sales, however most of the expenses …

Walgreens reports earnings - March 24th
What a difference a day makes. Leap year is going to be particularly good to Walgreens (WAG: chart, web, Y!).

On Monday the drugstore chain reports second-quarter earnings, and those numbers garner help from one extra day’s worth of business in February. Same-store sales rose 8.3% in February, and analysts expect that February 29th sales will push the EPS up to 67 cents.

Oracle Insight - March 26th
Oracle (ORCL: chart, web, Y!) is scheduled to report fiscal third quarter earnings after the market closes on the 26th. Normally I don’t follow Oracle, but …

Back in October, I started looking for the next buy-it and forget-it stock. My initial thoughts were Southern Copper (PCU: chart, web, Y!) and Schering-Plough (SGP: chart, web, Y!). However, through comments on that post, Mike chimed in and mentioned Walgreen Co. (WAG: chart, web, Y!).

At the time Mike mentioned the stock, it was around $39 per share, and has since dropped a bit more and is starting to show signs of increasing value. I must disclose that Mike says he is a pharmacist and individual investor, and worked for almost all of the chain pharmacies (like Walgreens).

Financial Summary

The stock has a 3-month average volume of 9.2 million shares traded per day with a current market cap of $36.8 billion. The company is paying a $0.095 per share dividend on a quarterly basis, which translates into a 1% annual yield.

The price to earnings ratio (P/E) is 18.3 as of the writing of this post, which is a significant discount to the rest of the companies in the sector. The average P/E ratio in the sector is 29.82.

Earnings growth is 18.6 as compared to a 21.41 average for the sector.

Earnings per share (EPS) is $2.03 and continues to increase quarter to quarter.

A few quick facts about the company…

Walgreen Co. was incorporated as an Illinois corporation in 1909 as a successor to a business founded in 1901. Walgreens is the nation’s largest drugstore chain (based on sales) and recorded its 33rd year of consecutive sales and earnings growth. During the year, the company opened or acquired 563 stores for a net increase of 478 stores after relocations and closings, not including 58 locations acquired from Option Care, Inc. The total number of locations at August 31, 2007 was 5,997 located in 48 states and Puerto Rico. Aggressive growth will continue as the company anticipates operating more than 7,000 locations in 2010.