Walgreen (WAG) 2012 Review

Walgreen’s (WAG) is the largest drugstore operator in the US, operating over 7700 drugstores. The company has grown earnings and dividends 12-16% annually over the past ten years, earning a 15-16% return on capital. Like most retail firms, WAG experienced an earnings hiccup in 2009; but it should be able to sustain an above average earnings growth rate in the future because:

(1) the +60 year old population, which is the largest user of drugs, is growing faster than any other segment of the population; in addition, the improvement in the quality of drugs for the maintenance of medical conditions should drive enhance revenue growth,

(2) renewal of its contract with Express Scripts,

(3) acquisitions,

(4) an aggressive stock buy back program.

 Negatives:

(1) it must still earn back customer losses resulting form Express Scripts dispute,

(2) a highly competitive industry,

(3) the sluggish economy impacts consumer spending that in turn hampers its growth,

WAG is rated A+ by Value Line, has a 14% debt to equity ratio and its stock yields 3.1%

   Statistical Summary

                 Stock      Dividend         Payout      # Increases  

                Yield      Growth Rate     Ratio       Since 2002

WAG         3.1%           16%            39%             10

Ind Ave      1.2               8*              21               NA 

                Debt/                       EPS Down       Net        Value Line

               Equity         ROE      Since 2002      Margin       Rating

WAG         14%           19%            1                 4%          A+

Ind Ave      30              14              NA               4            NA

*few of the companies in this industry  pay a dividend

    Chart

            Note: WAG stock made good initial progress off its March 2009 low, quickly surpassing the downtrend off its August 2007 high (straight red line) and the November 2008 trading high (green line).  Long term the stock is in a trading range (blue lines).  Intermediate term, it has struggled to hold an uptrend (purple lines).  The wiggly red line is the 50 day moving average.  The Aggressive Growth Portfolio owns a full position in WAG.  The upper boundary of its Buy Value Range is $27; the lower boundary of its Sell Half Range is $43.

  

http://finance.yahoo.com/q?s=WAG

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