Walgreens
David Mizell
Date Presented:
12/09/2004
Recommendation
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Recommendation: Hold
Own 1,000 Shares in Walgreens
Purchased at $25/share on 10/6/1999
 Cost Basis is $25,000
 Trading at $38.31 as of 12/8/2004
 Value currently $38,310
 Stock has gained $13,310 over holding period, up
53.24%
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Company Overview
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Industry
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GICS – Drug Retail
Competitors – Rite Aid, CVS, Osco
Corporate Info
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Founded in 1901 by Charles R. Walgreen, Sr. in Chicago
Operate in 44 states
Have 4,582 stores and 163,000 employees as of 8/31/2004
Expect to have 7,000 stores by 2010
Company Overview
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Innovations
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Introduction of Lunch Counters – 1910
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Ice cream when warm
Hot food when cold
The Malted Milkshake
First Drugstore Chain to Advertise on radio – 1931
Profit-Sharing and Pension Plans
“Self-Service Retailing”
Largest Private Satellite User
Past Financial Performance
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Total revenues were:
- $28,681,100,000 in 2002
- $32,505,400,000 in 2003
- $37,508,200,000 in 2004
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Basic net earnings per share:
- $1.00 in 2002
- $1.15 in 2003
- $1.33 in 2004
Walgreens’ Numbers
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Market Cap is 39.15B
P/E (ttm) is 29.04
EPS (ttm) is 1.33
Revenue (ttm) is 37.51B
Operating Margin (ttm) is 5.71%
Profit Margin (ttm) is 3.63%
Beta is .259
Stock Price Over Last 5 Years
Financial Analysis
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P/E Approach
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DCF
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Returns a price of $44.45
Returns a price of $38.24
View Excel Spreadsheet
Walgreens vs. S&P 500
Competitor Comparison
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Walgreens
 Market Cap:39.15B
 Employees: 117,000
 Rev. Growth (ttm):15.40%
 Revenue (ttm):37.51B
 Net Income (ttm):1.36B
 EPS (ttm):1.33
 P/E (ttm):29.04
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CVS
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Market Cap:18.07B
Employees: 100,000
Rev. Growth (ttm):10%
Revenue (ttm):29.12B
Net Income (ttm):912.6M
EPS (ttm):2.233
P/E (ttm):20.23
Rite Aid
Market Cap:1.78B
Employees: 36,250
Rev. Growth (ttm):5.1%
Revenue (ttm):16.87B
Net Income (ttm):172.06M
EPS (ttm):.039
P/E (ttm):11.13
WAG vs. CVS and RAD (1 year)
WAG vs. CVS and RAD (5 year)
Porter’s Five Forces
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Threat of New Entrants: Moderate
Threat of Substitutes: Low
Bargaining Power of Buyers: High
Industry Rivalry: High
Bargaining Power of Suppliers: Low
Macroeconomic Review
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Aging Population
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12.4% Over Age of 65 – 2001
Growing Due to Retirement of “Baby Boomers”
Importation of Drugs from Canada
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Could Deprive Walgreens of Revenue
Being Discussed or Implemented across US by States
Canadian Parliament is Concerned
Bush Against the Policy
Macroeconomic Review
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Domestic Political Health Care Issues
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New Medicare Prescription Drug Plan
Adds 75-100 Million New Prescriptions into the Market
 Does Reduce Amount Medicare Pays Each Individual
Prescriptions –Make up in Volume
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Medical Savings Accounts-Bush’s Plan
Company and Business Practices
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Currently have 4,582 stores in 44 states as of
8/31/2004
Opened 436 stores in 2004
Goal to open 450 stores in 2005
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Major Expansion in CA, NC, SC, FL, TX, WA
Expect to have 7,000 stores open by 2010
Company and Business Practices
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Revenues
Drug and In-Store Merchandise Sales
 Gained Market Share in 55 of top 60 Product
Categories – Food, Drug, and Merchandise
 Mail Order Business
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Advantage90 Plan
Prescriptions account for 62% of total sales
Company and Business Practices
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Leases
No Debt, but Billions in Leases
 18% of Locations Owned, Rest Leased
 Have roughly $20 Billion in Future Lease Payments
– Most Leases 20-25 Years
 Approx. $2 Billion Due Next Year Alone
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Company Updates
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Walgreens is expanding rapidly.
Added 436 stores in 04
 Expect to add 450 stores in 05
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Aging Population and New Medications will
Benefit Walgreens
Concerns
Political Issues
 Mail Order Competition
 No Debt, but a Large Amount of Leases
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Recommendation
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Recommendation: Hold 1,000 shares
I believe Walgreens will continue to lead their industry
and rapidly expand. The demographic changes in
America will greatly benefit them, especially over the
next 5-10 years as the Baby Boomer generation starts to
retire. Over the next 15-20 years, the number of retired
persons in America is expected to increase dramatically.
All of these factors point to Walgreens having
continued success in the short and long term.
Questions?