Pat McKeough responds to many personal questions on specific stocks and other investment topics from the members of his Inner Circle. Every week, his comments and recommendations on a selection of the most intriguing questions of the past week go out to all Inner Circle members. And each week, we offer you one of the highlights from these Q&A sessions.
This week, we heard from an Inner Circle member asking for investment advice on America’s largest drug store chain. Pat discussed the company’s prospects following a big acquisition last year, and this year’s decision to put an end to a key commercial relationship.
Q: Pat: What is your recommendation for Walgreen? Thanks.
A: Walgreen Co. (symbol WAG on New York; investor.walgreens.com), is the largest retail drug chain in the U.S., with over 8,270 outlets across the country. It also sells a wide variety of general merchandise.
In addition, the company sells its goods online through its own website and Beauty.com, SkinStore.com and VisionDirect.com.
In early 2011, Walgreen paid $409 million for Drugstore.com Inc., which sells over 60,000 health and personal care items. The purchase further strengthened Walgreen’s Internet presence and lets it compete with other online drug sellers.
As a member of my Inner Circle, you will get individual answers to your personal investment questions. And you will see my answers to questions other investors like you are asking. In fact, you will get virtually all the investment advice I have to give. You will have access to all of our advisories – The Successful Investor, Wall Street Stock Forecaster, Stock Pickers Digest and Canadian Wealth Advisor – and full access to the members-only, password-protected Inner Circle section of The Successful Investor Network website.
Although my team carefully researches all the stocks that members ask about, I personally review each and every recommendation. To ensure this close personal attention, only a limited number of members can be admitted to our Inner Circle. Under the pressure of world events, even more investors are asking for my personal investment advice. We are nearing our membership limit already. Click here to secure your membership in the Inner Circle right away.
Investment advice: Walgreen ends key relationship with benefits manager
In the three months ended November 30, 2011, Walgreen’s sales rose 4.7%, to $18.2 billion from $17.3 billion a year earlier. Earnings per share rose 1.6%, to $0.63 from $0.62, thanks to the higher sales and the company’s cost cutting efforts.
Walgreen ended its relationship with pharmacy benefits manager Express Scripts (symbol ESRX on Nasdaq) on January 1, 2012. (Pharmacy benefits managers negotiate discounts from drug makers so their clients—employers—can provide drug benefits to their workers with less cost.)
Walgreen and Express Scripts were in negotiations to renew their contract because Walgreen believed the reimbursement rates that Express Scripts was offering under the previous deal were too low. Express Scripts says it is still open to signing a new contract, but Walgreen refuses to make a better offer.
COMMENTS PLEASE
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The company raised its quarterly dividend by 28.6% with the September 2011 payment. The shares now yield 2.6%. Walgreen also continues to aggressively buy back its shares: it repurchased $608 million of stock in the latest quarter, in addition to $2 billion worth in the preceding year.
Walgreen trades at 11.9 times this year’s forecast earnings of $2.86 a share.
In the latest Inner Circle Q&A, Pat looks at the potential loss of earnings for Walgreen without Express Scripts and examines its attempt to pre-empt those losses with a new savings club of its own. He concludes with his clear buy-hold-sell advice.
Inner Circle members see Pat’s analysis and recommendations on the stocks that other members have asked about in each week’s Inner Circle Q&A. You can view it immediately when you become a member of this unique investment group. You will get Pat McKeough’s answers to your personal investment questions, full access to our members-only Inner Circle website, and many other membership privileges. Click here to get started right away.
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