fortune 500 company profile

1. WALGREEN CO.
Brandon Lee
Minghui Li
Jeremy Smith
April 29, 2008

2. Agenda
 Company Overview
 Industry and Economic Analysis
 Valuation
 Recommendation
 Q & A

3. Company Overview
 Walgreen company operate retail drug store chains that are
engaged in the retail sale of prescription drugs, non-prescription
drugs, and general merchandise.
 In 2008, it opened 536 net new stores for a total of 5997 Walgreens
in 48 states and in Puerto Rico.
 It is the fastest growing retailers in the US, and is the leader in the
chain drugstores.
 Ranked 44th
on the Fortune 500 list of the largest US-based
companies.
 On the list of Fortune’s magazine’s Most Admired Companies in
America for the last 14 consecutive years.

4. Business
Drugstores
Prescription
drugs
Nonprescription
Drugs
General
merchandise
Take care
Health
clinics
Home infusion
Therapy provider
Specialty
pharmacy

5. Product class
2007 2006 2005 2004
Prescription 65% 64% 64% 63%
Non-prescription 10% 11% 11% 12%
General Merchandise 25% 25% 25% 25%
 Prescription sales continue to become a
larger portion of the company’s business.
 Aging population
 Introduction of lower priced generics
 Continued development of innovative drugs

6. Growth Strategy
Stores
0
1000
2000
3000
4000
5000
6000
7000
2003 2004 2005 2006 2007
Stores
 Opening new stores
Walgreen expected to operate more than 7000 stores in 2010

7. Growth Strategy
 Acquisitions provide a unique opportunity and
strategic fit for Walgreen business.
 Fiscal 2007:
 100% of the outstanding shares of Option Care, Inc. and
affiliated companies
 Positioned Walgreen as the nation’s largest home infusion
therapy provider and the fourth largest specialty pharmacy
provider.
 100% ownership of Take Care Health System, Inc and LLC, a
convenient care clinic operator
 Selected assets of Familymeds Group, Inc.
 Remaining minority interest of SeniorMed LLC.

8. Growth Strategy
 Investment in technology and customer
service initiatives
Revenue (from 1998 to 2007) $Mil Fiscal year-end: 8

9. Fundamental Multiples
 P/E ratio kept declining stably with the increases in sales.
 Underlying story remains unchanged.
 Investors reconsidered the intrinsic value and the risk in the
business of Walgreen.

10. Walgreen Outlook
 Advantages:
 Good reputation: Walgreen is a quality name.
 Convenience of locations: Walgreen stores usually
position on high traffic corners, and around large
residential locations.
 High market share translating into scale benefits.
 Pricing advantage results from scale and high volume.
 Aging population
 Risk factors:
 Peaking generic drug cycle: It is anticipated that there
are no major generic drug introductions in 2008.
 Store saturation
 Competition from CVS/Caremark

11. Major Financial Activities
 Stock repurchase program:
• 2007 repurchased program: up to $1billion of the company’s
common stock, expiration date on January 10,2011.
• 2004 repurchased program: completely executed in three years
• During fiscal 2007, the company purchased $344.9million of shares
related to the 2007 repurchased program, 343.2 million of shares
related to the 2004 repurchased program
 Short-term borrowings: In the fiscal 2007, the
company issued commercial paper to support working
capital needs.
Credit ratings as of August 31, 2008:
Rating Agency Long-term debt ratings Commercial paper rating
Moody's Aa3 P-1
S&P A+ A-1

12. Industry Overview
 Retail (Drugs) Industry
 Highly competitive
 Saturated market
 Companies looking to enhance retail channels through
online and mail order sales
 Rx sales $259.36 Bln in 07’ vs. $250.64 Bln in 06’
 Main Competitors:
 CVS Caremark, Medco, Rite Aid
 Industry Business Segments:
 “Prescription drugs, proprietary drugs, and non-
prescription medicines, and which may also carry a
number of related lines, such as cosmetics, toiletries,
tobacco, and novelty merchandise”

13. Industry Performance
Walgreens, Co. (2007, Oct 26) Retrieved April 26, 2008, from SEC.gov

14. 1 Yr. Stock Performance
http://finance.yahoo.com/q/bc?s=WAG&t=1y&l=off&z=m&q=l&c=CVS,MHS,RAD,%5EDJI; Accessed: April 25, 2008.

15. Macroeconomic Overview
 Credit Crunch
 Since late 2007, economic slowdown in response
to housing woes
 Tougher for companies to access cheap debt
 Slowed Growth in GDP
 Decline in Consumer Confidence
 Provides insight to market direction
 @ a 5 year low (March 2003, 61.4)

16. http://www.conference-board.org/economics/consumerConfidence.cfm
 Decline in
Consumer
Confidence
 Provides insight to
market direction
 @ a 5 year low (March
2003, 61.4)
Macroeconomic Overview

17. Macroeconomic Factors
 Rapid growth in price of Oil
 High prices have a negative impact on the economy
 Costs to the businesses increase
http://quote.com/us/futures/chart.action?
s=CL+M8&chartUi.period=M&chartUi.bardensity=LOW&chartUi.bartype=AREA&chartUi.size=620x300&chartUi.minutes=;
Accessed: April 1, 2008.

18. RCMP Position:
 Purchased 1000 shares of WAG on October 6th
,
1999 for $25.00/share.
 On September 20th
, 2006, sold 500 shares @
$49.94/share for a realized gain of $12,470.
 Currently own 500 shares of WAG, trading at
$35.48 as of April 28, 2008 for an unrealized
gain of $5,240 or 41.92%.

19. RCMP Portfolio
RCMP Portfolio (4/28/2008)
Cash, 43.47%
AEE, 5.10%AEO, 7.58%CPRT, 8.14%
DO, 3.68%
FR, 8.84%
JKHY, 2.94%
KMB, 5.38%
SRCL, 6.07%
WAG, 4.98%
WFR, 3.83%

20. Correlation:

21. Operating Leases:
 Operating leases are not reflected as
assets or liabilities on the balance sheet.
 Does not reflect the cumulative economic liability
for all future lease payments
 Results:
 Reduce the likelihood of a debt covenant violation
 Increase ability to obtain future additional loans
 Improve financial ratios like debt-to-equity ratio

22. Lease Obligations:
 Walgreens owns 19.1% of its stores,
leasing the remaining 80.9%.
 Present value of lease obligations is
$14.219 billion
 Can be viewed as debt
 Should consider the risk of this these
lease obligations

23. DCF Assumptions:
 WACC Calculation:
 Weight of Equity: 100%
 Weight of Debt: 0%
 Rf = 4.05%
 Beta = .75 (taken from March 2008 Value Line)
 ke = 8.55%
 Long Term Growth Rate = 4.00%
WACC = 8.55%
DCF Value = $35.19
DCF Range = $31.67 – $38.71

24. Comparables:
Source: http://finance.yahoo.com/q/co?s=WAG; Accessed: April 28, 2008

25. Recommendation:
 HOLD existing 500 shares of WAG
Consistently beating Wall Street expectations
Continues to open new stores at 8% rate per
year