By J. Royden Ward, Editor of Cabot Benjamin Graham Value Letter
From Cabot Wealth Advisory 10/21/10 Sign up for free Cabot Wealth Advisory e-newsletter
Walgreen (WAG), a leading drug store retailer, is adding worksite and homecare facilities to its pharmacy business. The company has also become more active in acquiring small competitors, and its new management is renovating existing stores and cutting operating costs.
Sales, earnings, and dividends increased 11% to 12% per year during the past 10 years. We foresee sales, earnings and dividend growth of 8%, 12% and 15% during the next five years. New acquisitions and the expected rapid growth of the drug store industry will spark strong results.
WAG shares are reasonably priced at 14.5 times forward 12-month EPS. Dividends have been paid since 1933 and currently provide a yield of 2.1%.
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J. Royden Ward
Editor of Cabot Benjamin Graham Value Letter
A lifelong investment professional, J. Royden Ward applies his 40 years of investment research, portfolio management, writing and publishing experience to his role as analyst and editor of Cabot Benjamin Graham Value Letter, which is directed to long-term investors seeking a guide to profitable value investing based on the time-tested systems originally developed by Benjamin Graham, the Father of Value Investing. A second-generation disciple of Benjamin Graham, Roy in 1969 pioneered the development of a computerized model that applied the formulas developed by Graham using a unique ranking system. Today, Roy applies his system to two models in the Value Letter.
By J. Royden Ward, Editor of Cabot Benjamin Graham Value Letter
From Cabot Wealth Advisory 4/27/10 Sign up for free Cabot Wealth Advisory e-newsletter
Walgreen (WAG), founded in 1901, is the second largest drug store retailer in the U.S. In addition to 7,000 drug stores, the company operates 680 health clinics within existing stores and on employer worksites.WAG's clinics offer primary and acute care, pharmacy and disease management services, and health and fitness advice.
Walgreen typically adds new stores and renovates old stores, but occasionally acquires smaller competitors if the price is right.The company's strategy has led to steady, reliable growth for decades.
Walgreen recently acquired Duane Reade, based in New York City, for $1.1 billion cash. Reade will add significant sales and earnings and enhance WAG's future growth prospects.
Same store sales increased by 1.6% in March compared to an increase of 0.6% in February and a decrease of 0.6% in January.New management is renovating existing stores, cutting operating costs, and improving customer service. We foresee sales and EPS growth of 7% and 15% respectively for the next 12-month period followed by 14% EPS growth in future years. The dividend yield is 1.5% and growing.
Walgreen shares are undervalued at 14.6 times next 12-month EPS. WAG's stock price increased just 28% during the past decade while earnings and dividends more than tripled. We believe the company's stellar performance will now be rewarded and push WAG shares to our target sell price within the next one to two years.
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