1 / 30

Analysts: MATT HAWK ROGER HONG YE JIANG PRATEEK SHARMA

14-Oct- 2010. Analysts: MATT HAWK ROGER HONG YE JIANG PRATEEK SHARMA. OUTLINE. Company overview SWOT analysis Macro economy review Industry analysis/ Porter’s Five Forces Competitors DCF valuation Recommendation. OUR HOLDINGS. RCMP currently owns 500 shares of WAG. WAG DETAIL.

taffy
Download Presentation

Analysts: MATT HAWK ROGER HONG YE JIANG PRATEEK SHARMA

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. 14-Oct- 2010 Analysts: MATT HAWK ROGER HONG YE JIANG PRATEEK SHARMA

  2. OUTLINE • Company overview • SWOT analysis • Macro economy review • Industry analysis/ Porter’s Five Forces • Competitors • DCF valuation • Recommendation

  3. OUR HOLDINGS • RCMP currently owns 500 shares of WAG

  4. WAG DETAIL • RCMP purchased WAG 1,000 shares at $25/share on Oct. 06, 1999 • RCMP sold WAG 500 shares at $49.94 • Realized gain: $12,470 • Currently owns 500 shares trading at $34.27 (as of Oct. 17, 2010) • Unrealized gain: $4,635

  5. HISTORY 1901 Charles R Walgreens Sr. purchased Chicago Drug Store where he had worked as a pharmacist -Start of Walgreens Chain 1926 Opened 100th Store 1927 Walgreens Co. Stock went Public 1975 Sales reached $1 Billion 1984 Opened 1000th store 1994 Opened 2000th store 2005 Opened 5000th store 2009 Opened 7000th store

  6. PRESENT • Walgreens is a retail drugstore chain that sells prescription and non-prescription drugs, and general merchandise • As of Aug. 31, 2010, Walgreens operated 8,046 locations in all 50 states, the District of Columbia, Puerto Rico and Guam. It employs around 238,000 people • Sales increased 7.4 percent to a record $16.9 billion for the fourth quarter and 6.4 percent to a record $67.4 billion for the fiscal 2010 • Walgreens filled a record 778 million prescriptions in fiscal 2010 an increase of 7.5 percent. Prescription sales: 65%

  7. RECENT EVENTS • Sept 2010 – Walgreens and Omnicare reached an agreement in which Omnicare will acquire all of the assets of Walgreens long-term care pharmacy business, and in return Walgreens will acquire all of the assets of Omnicare’s home infusion businesses • Aug 2010 – Walgreens announced an agreement with Graymark Healthcare Inc. (NASDAQ: GRMH) in which the company will acquire the assets of 18 ApothecaryRx pharmacies located in Colorado, Oklahoma, Minnesota, Missouri and Illinois • April 2010 – Walgreens acquired Duane Reade Holdings, Inc for approx $1.1bn. The transaction included all 258 Duane Reade stores in the New York City metropolitan area, as well as Duane Reade’s corporate office and two distribution centers

  8. STOCK PERFORMANCE

  9. MANAGEMENT

  10. GROWTH STRATEGY • Three Primary Components • Leveraging the best store network in America • Within five miles of nearly three-quarters of all Americans • Enhancing customer Experience • Customer Centric Retailing”(CCR): feature lower shelves and about 15 percent fewer individual items, which provides a more efficient and convenient shopping experience for today’s busy consumers. (Now more than 1,800 stores) • Beer and wine was added to more than 3,500 stores and now is available in a total of nearly 4,200 stores • Driving cost reduction and productivity gain • Rewiring for Growth: Target for $1 billion in annual savings in fiscal 2011

  11. SWOT ANALYSIS

  12. MACROECONOMIC REVIEW • Macro economy current: The tough economic conditions of 2008 and 2009 had a lasting effect on consumer behavior. Concern over high unemployment and declined consumer confidence affect customer’s spending habit. Price has become the single most important factor in making the purchase decision Consumer confidence: Unemployment Source:http://mjperry.blogspot.com/2010/06/consumer-confidence-highest-since-jan.html

  13. MACROECONOMIC REVIEW • As the economy begins to strengthen in 2010 and 2011, decreasing unemployment and rising income levels should boost this industry’s pharmaceutical as well as front-end sales • Also, as more consumers gain employment, the level of insurance coverage is expected to rise, thus increasing the likelihood people will purchase pills and other medicine • Increase in health awareness among people will lead to increase in front-end sales of health related products • Increased spending by the government on Medicare/Medicaid is expected to boost sales

  14. INDUSTRY ANALYSIS • Industry Outlook: The industry outlook is positive: Sales will maintain growth due to an aging population, longer life expectancy and healthcare reform. Revenue is forecast to grow at an average annualized rate of 3.1% to total $251.9 billion in 2015 • Highly Competitive Industry M&A: The industry will slow its new store openings after decades of rapid expansion, and consolidation will continue. Enterprise numbers will decline at an average annualized rate of 1.3% to settle at about 21,786 companies during the next five years Price: As Mass merchants, mail-order pharmacies and PBMs (pharmacy benefit managers ) continue to pose a threat to industry sales, they place downward pressure on prices Source:Pharmacies&Drug Stores in the US, ISBS World Industry Report 44611, July 2010

  15. Medical reimbursement level Certain provisions of the Deficit Reduction Act of 2005 seek to reduce federal spending by altering the Medicaid reimbursement formula for generic drugs. These changes are expected to result in reduced Medicaid reimbursement rates for prescription • Health reform Expand insurance coverage and subsequently increase pharmaceuticals’ demand as they become more affordable The government is expected to initiate cost cutting, which could adversely affect profit margins Source:https://materials.proxyvote.com/Approved/931422/20091116/AR_48630/HTML2/default.htm

  16. PORTER’S FIVE FORCES • Barrier to Entry: Medium Consolidation that is creating large players with deep resources Government and state laws and regulations • Threat of substitutes: Drugs: Low Few alternative choices, inelastic demand General Merchandise: High Supermarkets are large threats • Bargaining power of buyers: Moderate Inelastic demand but thinning profit margin • Bargaining power of suppliers: Moderate The large retailers purchase directly from several suppliers, strong relationship • Rivalry among existing competitors: High Both internal and external sources, including other drug store chains or independent drug stores, supermarket chains, mass merchandisers, on-line retailers and mail order pharmacies

  17. COMPETITORS - DESCRIPTION • CVS Caremark – CVS Caremark operates in two segments – Pharmacy Services and Retail Pharmacy. The Retail Pharmacy segment sells prescription drugs, over-the-counter drugs, beauty products and cosmetics, photo finishing, seasonal merchandise, greeting cards, and convenience foods through its pharmacy retail stores and online. It operates approx. 7,000 retail stores. For the year ending 31-Dec-2009, it reported sales of $98.729B • Rite Aid Corporation – Rite Aid operates retail pharmacy stores . As of Feb 2010, it operated around 4,780 stores. It sells prescription drugs and an assortment of other merchandise. For the year ending Feb 2010, it reported a loss of $506.7M on revenues of $25.37B

  18. COMPARATIVE RATIOS Source: Capital IQ

  19. SALES FORECAST • We have optimistic growth expectations for WAG, expecting it to rebound from the economic turmoil it faced over the past two years

  20. GROWTH DRIVERS "Our use of cash has been, and will continue to be, guided by a capital policy that commits us to maintaining a strong balance sheet and financial flexibility; reinvesting in core strategies and related strategic activities; and returning surplus cash to shareholders in the form of dividends and share repurchases,“ - Greg Wasson

  21. GROWTH DRIVERS (Cont.) • Strong balance sheet and financial flexibility • Allows WAG to return income to shareholders in the form of dividends and stock repurchases • Slow store growth to free up capital and focus on WAG’s core business • 2009 Repurchase Program • “2008 Rewiring for Growth” Program • Enhance the customer experience (CCR) • Extend their presence in pharmacy, health and wellness services • Cost reduction and productivity gain • Reduce on-hand inventory • Eliminate 3,500 products Source:http://news.walgreens.com/article_display.cfm?article_id=5260

  22. RESULTS • Sustain long-term revenue growth • Increase margins through cost reduction (“Rewiring for Growth”) • 2010 - $600 million cost reduction • 2011 - $1000 million cost reduction ($400 million net gains) • Double digit EPS growth • 30-35% return to shareholders • Low leverage allows WAG to compensate equity holders Source:http://news.walgreens.com/article_display.cfm?article_id=5260

  23. ROE

  24. DEBT SCHEDULE(WITHOUT OPERATING LEASES)

  25. DEBT SCHEDULE(WITH OPERATING LEASES) Although WAG doesn’t have much long-term debt, its operating leases make it a much more highly levered company

  26. WACC – W/ OPERATING LEASES

  27. DCF – W/ OPERATING LEASES

  28. RELATIVE VALUATION

  29. PERFORMANCE OVER TIME

  30. RECOMMENDATION • Hold 500 shares at current price • Any merger or acquisition in the industry could provide stimulus to stock price • Regular dividend paying stock • Consistently outperformed both S&P 500 and DJIA

More Related