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Walgreens 8/5/2002
LT Buy at $32.62. Price
target: $40.00
By Chris Stallman
| E-mail
When you
think of truly great companies, which ones come to mind? General
Electric? Citigroup? Ford? Well, if Walgreens didn't pop in
your head, you should probably add it to the list.
Walgreens was founded in 1901 with just one pharmacy
measuring 50 feet by 20 feet. Today, the company has over 3000 stores
in the United States and Puerto Rico and has plans to open its 6000th
store by 2010. This has helped put Walgreens in the #1 position
in the drug store industry.
Walgreens
is the symbol of good corporate culture. The company is active in
community affairs, takes great pride in its employees, and was even
one of the first companies to institute a profit sharing pension
plan. Good ethics has built a solid foundation and good employee
retention for this company.
The company generates about 60% of its sales through
prescription drugs but photo processing, groceries, cosmetics, and
cards are quickly improving their top line. One of the nice things
about Walgreens is that they produce so many generic products on
their own and place them next to the name brand on the shelves.
This allows the customer to buy the Walgreens brand product for
far less than the name-brand one.
What I Like About
This Stock
- Solid
growth - This company has continued to not only grow its revenues
by expanding stores but by also improving their same-store sales.
July same-store sales were up 11%
- Great
long-term performance - Walgreens has performed wonderfully over
the last 25 years. In fact, it has even outperformed the likes
of Intel. Very impressive.
- Homespun
growth over acquisition growth - By building their own stores
rather than acquiring new ones from other companies, Walgreens
enables itself to properly pick its locations in high-traffic
areas. While they have less stores than rivals CVS and Rite Aid,
their sales put them #1 in their industry.
- Consumer
loyalty - Walgreens has incredible consumer loyalty and they're
making steps to improve that even further. For example, they now
offer a "free film for life" disposable camera that
helps build return customers for their one-hour photo labs.
What I Don't Like
- Fairly
high PE ratio - The company is trading at 34.7x this year's
earnings. That will prevent the stock from reaching new highs
and will hold it back for a little while...but not forever.
Overall, I think Walgreens is a great addition to anyone's
portfolio. It is a strong, solid company that won't have accounting
scandals or file for bankruptcy. I see this stock reaching $40.00/share
again within the year and from there, continuing with steady 15%
growth.
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