Walgreen: A bullish prescription
After a decade of moving sideways, this stock is set for an upside breakout.
By Chuck Carlson, DRIP Investor
Editor's Portfolio holding Walgreen (WAG) has enjoyed a rebirth of sorts recently. Indeed, shares of this drugstore giant recently skyrocketed to a new 52-week high.
On the earnings front, per-share profits excluding acquisition costs rose 9% to 96 cents per share in the quarter ended February 28. The results beat the consensus estimate by 2 cents. Investors also liked what they heard concerning a strategic deal Walgreen announced with Alliance Boots and AmerisourceBergen (ABC).
Alliance Boots is a leading international health and beauty retailer in which Walgreen has an equity position; and AmerisourceBergen is one of North America's largest pharmaceutical-services companies.
Under the agreement, Walgreen will expand its existing relationship with AmerisourceBergen into a 10-year primary distribution agreement for branded and generic pharmaceutical products.
The strategic alliance should help expand Walgreen's international footprint, especially in generic drugs, an area expected to see ample growth.
I've tried not to get too excited about Walgreen's fits and starts in recent years, as it seems just when the stock is ready to break out, these shares pull back. Despite the recent strength the stock still trades below its all-time high of just under $52 per share posted in 2006.
Given that the stock has basically traded sideways for much of the last decade, a strong move through that 2006 high would represent a significant breakout for the stock and a likely move to sharply higher levels.
Thus, these shares are fast-approaching a critical level. I remain a fan of the stock and recommend purchase. Dividend investors take note that these shares yield 2.4%, and future dividend growth should be ample.
Walgreen offers a direct-purchase plan whereby any investor may buy the first share and every share directly from the company. Minimum initial investment is $250.
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John Stumpf acknowledges that growth has been slow, but he says he's still optimistic.
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