Thursday, October 27, 2011

Walgreen (WAG) 2011 Review

Walgreen’s (WAG) is the second largest drugstore operator in the US, operating over 7600 drugstores. The company has grown earnings and dividends 13-14% 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) it is divesting non-core assets and reinvesting the proceeds in the rapidly growing segments of its business,

(3) increasing market penetration,

(4) an aggressive stock buy back program.


(1) the expiration of its agreement with Express Scripts [pharmacy provider network] will temporarily slow the growth of its business,

(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 2.5%

Statistical Summary

Stock Yield Dividend Growth Rate Payout Ratio # Increases Since 2001
WAG 2.5% 16% 32% 10
IND 1.2 8* 17 NA
Debt/Equity ROE EPS Down Since 2001 Net Margin Value Line Rating
WAG 17% 15% 1 7% A+
IND 28 16 NA 3 NA

*few of the companies in this industry pay a dividend


Note: WAG made steady progress off its March 2009 low, quickly surpassing the down trend off its September 2007 high (red line) and the November 2008 trading high (which over laps with the lower straight blue line). Long term, the stock is in a trading range (straight blue lines). Intermediate term, it is in an up trend (purple lines). The wiggly blue lines are Bollinger Bands. The Aggressive Growth Portfolio owns a full position in WAG. The upper boundary of its Buy Value Range is $28; the lower boundary of its Sell Half Range is $44.