Friday, March 18, 2011

Stock Idea: Walgreen Co. (WAG, $41.16)

(May 16, 2011 update: All future stock posts will appear on my new subscription-only website at Please visit!)

Walgreen Co. (WAG)
is an American drugstore chain with $67 billion in 2010 sales. The company has been beating consensus earnings estimates for two quarters in a row, and looks likely to repeat that pattern. Earnings drivers include demand during the recent flu season, and generic drugs coming onto the market. Lipitor is going generic later this year -- the largest drug on the market -- followed by several more drugs going generic in 2012.

Walgreen consensus EPS estimates are projected to climb 20.7%, 14.9% and 12.3% in fiscal years 2011 through 2013. The current PE is 15.7 based on 2011 projected EPS. The stock pays a dividend of $0.70, yielding 1.70%.

Walgreen stock was trading between $40-$50 in the 4.5 years (2004-2008) leading up the financial meltdown of 2008. It proceeded to trade between $22-$40 in the ensuing years, and is just now breaking out of the trading range and returning to its former range above $40.

In the immediate future, look for the stock to trade between $40.50 and $43. I expect a subsequent move upward to occur sooner rather than later, although I would definitely be prepared for the stock to hit a ceiling near $50 and come back down. An attentive investor could make money repeatedly in Walgreens stock if it continues trading similarly to the 2004-2008 period.

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The Right Huff is Crista Huff's blog for politics and items of sociological or financial interest. Crista Huff also manages Goodfellow LLC, a subscription-only stock market website. We strive to identify financially healthy companies in which traders and investors can buy shares and earn dividends and capital gains. See disclaimer for the risks associated with investing in the stock market. See your tax advisor for the tax consequences of investing. See your estate planning attorney to clarify beneficiary and inheritance issues associated with your assets.

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