Walgreen Looks Poised To Take The Next Leg Up

| About: Walgreens Boots (WBA)

Walgreen's (WAG) stock has not done much since it successfully renegotiated its huge contract with Express Scripts (NASDAQ:ESRX). However, the stock has picked up some recent catalysts and looks poised to move higher. The stock's generous yield, reasonable valuations, defensive nature, and success in raising its dividend payouts in an impressive manner in recent years make it a must-have for income portfolios.

Here are some positives/catalysts for Walgreen:

  • Goldman Sachs went from having Walgreen as "not rated" to putting it on its "conviction buy" list this morning.
  • Cantor Fitzgerald initiated the shares as a "Buy" in mid-August.
  • Consensus earnings estimates for FY 2013 have moved up nicely over the past three months, and the company is expected to have positive revenue increases next year after being flat this year.

According to the business description from Yahoo Finance, "Walgreen Co. operates the biggest chain of drugstores in the United States. The company has over 7,900 drugstores in all 50 states."

Here are four additional reasons why Walgreen is a still a solid pick for value investors at $36 a share:

  1. The stock yields a solid 3.1%, and the company has tripled its dividend payouts over past three years.
  2. The stock is selling near the bottom of its five-year valuation range based on P/E, P/CF, P/B, and P/S.
  3. The stock sells at a very reasonable 11.5 times forward earnings, given its yields. It also is a good defensive pick should the economy degrade come 2013, which I think is a strong possibility.
  4. The stock has spent the last few months consolidating its gains from the Express Scripts agreement and is solidly above its 200-day moving average. Walgreen looks poised to move back up to the level it was at before prior to its contract loss (see chart).

Click to enlarge image.

Disclosure: I am long WAG. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.