Walgreen: Cheap By Its Own Standards

Walgreen (WAG) is a retail drugstore chain that operates primarily in the US. Its industry is considered relatively stable, as prescription medication costs are unlikely to rise or fall significantly depending on the economy (unlike certain surgical procedures, as we saw here). WAG has also been around for decades, and therefore offers us the chance to examine investor sentiment towards this company over time. Below is a depiction of WAG's P/E since the early 1960s:

Clearly, Walgreen has seen many recessions come and go. But despite the stable nature of its industry, it has seen wild fluctuations in its P/E, especially in the last decade. (Incidentally, despite being in a completely different industry, Coke (KO) is also an old and stable company which therefore lends itself to the same kind of historical P/E analysis, which we looked at here.)

We can see from the above chart that WAG has not traded at such a low P/E for quite some time, which may offer long-term investors the opportunity to profit from a potential P/E expansion when positive investor sentiment returns. However, a company's P/E value does not take into account its level of debt and is furthermore affected by one-time items which may distort a company's "normal" earnings. As such, in future posts we'll compare WAG to its competition (CVS), (RAD) keeping such items in mind.

Disclosure: None

Comments

[Dan Jacome:]

its not the debt that has the PE down - its that their cap ex plans are higher than CVSs

Great story, best locations, but mgmt could be too confident about its organic growth plans

CVS is comping better, anyways

Jan 05 04:49 PM

[Dan Jacome:]

WSJ article points out why WAG and CVS are hounded

online.wsj.com/article...

Jan 06 09:09 AM

[bbowen7:]

There are 40 million uninsured - coming down in the new administration.
Drugstores make bigger margins on generics.

Jan 06 03:30 PM

[ej1234:]

wag has shelved $1b of those capex plans in the past three months. cvs is only comping better because they dont report monthly numbers. wait til 4Q results come out. they overpaid for caremark and are much more leveraged. wag has higher roe (5yr avg), margins, dividend yield, turnover, debt rating, and the smaller size creates more room for growth; easily the better choice.

Jan 07 09:15 AM

[bobbysocks:]

I have been a stockholder of WAG since 1970, accumulated lots of shares, sold off lots of shares but still have reasonable position. I think WAG is in to many locations, to close to one another and retail is learning after this year that there is way to much retail in the country. Here in Central Florida, there are plaza's everywhere, some of them almost empty. I am going to hold WAG for the time being, I saw where it hit 27 yesterday for a short time.

Jan 08 10:55 AM

[long term w...:]

Can anyone explain why the oustanding and floating number of shares has decreased? And what does it mean to the current share holders?

Jan 09 11:21 AM