"Full-year results declined by -7% from 2008. The company reported a 2009 profit of $2.01 billion, or $2.02 per share, excluding restructuring charges, compared with $2.16 billion, or $2.17 per share, in the prior year.

"The company said the results from 35 stores that were revamped under its remodeling program, which it calls Customer Centric Retailing (CCR), were positive enough to encourage a roll-out of the concept to 400 stores in Texas this fall. The CCR format will be expanded to additional markets after the holiday season.

"Walgreen is also pushing more deeply into providing basic medical care at its in-store clinics. The company noted that it has nearly 16,000 pharmacists and nurse practitioners licensed or certified to administer immunizations and has been promoting $24.99 flu shots at stores that it says are available every day.

"The company also signed a deal with Caterpillar during the quarter to fill the prescription needs of the construction equipment maker's employees and retirees. Walgreen also operates health and wellness centers for several clients.

"Overall, this was a solid quarter for Walgreen in a tough operating environment. Strong sales of high-margin generic drugs helped to boost the company's bottom line, aided by the fact the anticipated benefits from the company's restructuring efforts appear to have helped sooner than was expected.

"General merchandise sales weakness took some of the edge off of the improvement, but we expect the focus on basics, inventory management and easier comps will help the general merchandise category moving forward.

"The publicity surrounding a renewed outbreak of the H1N1 flu in many states should also boost customer traffic in coming weeks as the vaccine becomes widely available and those individuals that contract the flu seek treatments.

"Also the increased attention on the regular flu as a result should also boost sales of regular flu shots.

"We think current analyst estimates look a little low for the current fiscal year, and we expect the stock to also see some multiple expansion as investors become more comfortable with the fruits of Walgreen's streamlining efforts and a slowdown in new store openings.

"We reiterate our 'Buy' Rating on Walgreen, and we are raising our price target from $36 per share to $45."

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