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Walgreens

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

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

  2. 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%

  3. 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

  4. 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

  5. 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

  6. 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

  7. Stock Price Over Last 5 Years

  8. Financial Analysis • P/E Approach • Returns a price of $44.45 • DCF • Returns a price of $38.24 • View Excel Spreadsheet

  9. Walgreens vs. S&P 500

  10. 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

  11. WAG vs. CVS and RAD (1 year)

  12. WAG vs. CVS and RAD (5 year)

  13. 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

  14. 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

  15. 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

  16. 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

  17. 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

  18. 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

  19. 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

  20. 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?

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