Transcript 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 Stock has gained $13,310 over holding period, up 53.24% 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 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 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 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 P/E Approach DCF Returns a price of $44.45 Returns a price of $38.24 View Excel Spreadsheet Walgreens vs. S&P 500 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 WAG vs. CVS and RAD (1 year) WAG vs. CVS and RAD (5 year) 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 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 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 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 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 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 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 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?