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Walgreens. David Mizell Date Presented: 12/09/2004. Recommendation. 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

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walgreens

Walgreens

David Mizell

Date Presented:

12/09/2004

recommendation
Recommendation
  • 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%
company overview
Company Overview
  • Industry
    • GICS – Drug Retail
    • Competitors – Rite Aid, CVS, Osco
  • Corporate Info
    • 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 overview1
Company Overview
  • Innovations
    • Introduction of Lunch Counters – 1910
      • 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
Past Financial Performance
  • Total revenues were:

- $28,681,100,000 in 2002

- $32,505,400,000 in 2003

- $37,508,200,000 in 2004

  •  Basic net earnings per share:

- $1.00 in 2002

- $1.15 in 2003

- $1.33 in 2004

walgreens numbers
Walgreens’ Numbers
  • 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
financial analysis
Financial Analysis
  • P/E Approach
    • Returns a price of $44.45
  • DCF
    • Returns a price of $38.24
  • View Excel Spreadsheet
competitor comparison
Competitor Comparison
  • 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
  • CVS
    • 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
porter s five forces
Porter’s Five Forces
  • Threat of New Entrants: Moderate
  • Threat of Substitutes: Low
  • Bargaining Power of Buyers: High
  • Industry Rivalry: High
  • Bargaining Power of Suppliers: Low
macroeconomic review
Macroeconomic Review
  • Aging Population
    • 12.4% Over Age of 65 – 2001
    • Growing Due to Retirement of “Baby Boomers”
  • Importation of Drugs from Canada
    • Could Deprive Walgreens of Revenue
    • Being Discussed or Implemented across US by States
    • Canadian Parliament is Concerned
    • Bush Against the Policy
macroeconomic review1
Macroeconomic Review
  • Domestic Political Health Care Issues
    • 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
    • Medical Savings Accounts-Bush’s Plan
company and business practices
Company and Business Practices
  • 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
    • Major Expansion in CA, NC, SC, FL, TX, WA
  • Expect to have 7,000 stores open by 2010
company and business practices1
Company and Business Practices
  • Revenues
    • Drug and In-Store Merchandise Sales
    • Gained Market Share in 55 of top 60 Product Categories – Food, Drug, and Merchandise
    • Mail Order Business
      • Advantage90 Plan
    • Prescriptions account for 62% of total sales
company and business practices2
Company and Business Practices
  • 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
company updates
Company Updates
  • Walgreens is expanding rapidly.
    • Added 436 stores in 04
    • Expect to add 450 stores in 05
  • Aging Population and New Medications will Benefit Walgreens
  • Concerns
    • Political Issues
    • Mail Order Competition
    • No Debt, but a Large Amount of Leases
recommendation1
Recommendation
  • 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?