Valuation – Walgreen closed Friday, June 22nd at $29.57, which is approximately 33% off of the 52 week high of $44.26. The price has fallen back as Walgreen has been involved in a protracted dispute with Express Scripts over the cost of filling prescriptions within the Express Scripts network. The contract between the two companies was terminated in January, and since then Walgreen has seen sales fall as the number of prescriptions hammer crusher filled has also fallen. In the most recent quarter, Walgreen reported sales fell 3.4% from a year ago.
Walgreen currently has a P/E of 10 and a PEG of 1.09, both of which are historically very low. In fiscal year 2011 Walgreen had Diluted Earnings per Share of $2.94, which was a gain of 38.7% over 2010. Although the Express Scripts dispute has hurts sales, I believe this will be short term as Walgreen has stated they are taking action to move on from the dispute. Here is a recent statement from Walgreen concerning their dispute with Express Scripts, ‘Walgreen plans to work with other PBMs and with health plans to recapture Express Scripts script volume over time. We believe those PBMs and health plans with Walgreen in their networks will be at a significant advantage during next year’s selling season.’ More importantly, I also believe, as I will discuss in more detail later that Walgreen is in the process of transforming the company away from the old drug store concept.
Dividend Growth – Using David Fish’s excellent The DRIP Investing Resource Center we find that Walgreen is a dividend champion having raised its dividend 36 consecutive years with a ten year average dividend growth rate of 18.9%. On June 19th, Walgreen announced a dividend increase from an annual rate of $0.90 to $1.10 a share, an increase of 22.5%, payable September 12th. That will then make 37 straight years of dividend growth. Walgreen has stated they intend to maintain a dividend payout range of 30 to 35 percent of their net earnings to shareholders. When it comes to dividend growth, Walgreen easily passes the test. china sand washers:http://www.hxjq-crusher.com/16.html
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In 2009, Walgreen announced their ‘Plan to Win.’ The plan focused on leveraging the best store network in America; enhancing the customer experience; and achieving major cost reduction and productivity gain. The goal is to become America’s most trusted and convenient provider of consumer goods and services and pharmacy, health and wellness solutions. The first step in this transformation began with a re-imaging of their stores. To date Walgreen has re-imaged over 5,000 stores into the Customer Centric Retailing initiative. The new stores have shown improved sales and customer satisfaction. The stores offer more fresh healthy foods, wellness clinics that offer basic health care like flu-shots, various health screening, an updated check out experience and more customer services in the beauty and pharmacy areas.
Together, the two companies will be the world’s largest purchaser of prescription drugs, which should allow them price flexibility with the manufacturers. They will have 11,000 retail stores in 12 countries. The strong portfolio of beauty products produced by Alliance Boots will be expanded throughout the Walgreen’ network. Their respective private label brands will be expanded throughout the new retail network. I believe the combination of these two companies will result in the world’s first and largest pharmacy health and wellness store chain that will continue to grow for many years.
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