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

(May 16, 2011 update: All future stock posts will appear on my new subscription-only website at www.GoodfellowLLC.com. 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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