Is Walgreen’s Stock A Buy Now?

With shares of Walgreen (NYSE:WAG) trading at around $33.33 is WAG an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

October was a little scary for Walgreen, but investors are beginning to get back on board. The company has a renewed partnership with Express Scripts (NASDAQ:ESRX) and a 3.30% yield, making Walgreen a more attractive stock to own. Its main competitor is CVS Caremark (NYSE:CVS). There’s a good chance that if you have a Walgreen in your area, there’s also a CVS. Think of it as two fast food chains or gas stations competing against one another from across the street. It works the same way since competition breeds success, and the results are similar.

However, if you look at both max charts, you will see Walgreen has greatly outperformed CVS throughout the years. In addition to that, Walgreen’s 3.30% yield is more enticing than CVS’s 1.40% yield. If you’re thinking about Rite Aid (NYSE:RAD), it shouldn’t even be considered in this conversation. Rite Aid doesn’t compare to Walgreen or CVS in any area, including yield (Rite Aid doesn’t offer a dividend.) Basically, Walgreen is the best option in this group.

E = Debt to Equity Ratio is Low

Walgreen has a debt-to-equity ratio of .30. This is similar to CVS’s debt-to-equity ratio of .27.

In regards to cash vs. long-term debt, Walgreen has $1.29 billion in cash and $4.07 billion in debt. Walgreen also has over $4 billion in operating cash flow. CVS has 1.23 billion in cash and $10.04 billion in debt. CVS has over $5 billion in operating cash flow. Once again, we see relatively similar numbers.

T = Technicals on the Stock Chart Are Subpar

Walgreen has underperformed the S&P 500 for several years. However, you shouldn’t look into this too much because investors have gone with more risk-on opportunities. While the parabolic stocks have been making investors a lot of money over the past few years, Walgreenswill continue to saunter along, making investors consistent money while those former parabolic stocks see their days of reckoning.

Over the past month…

Walgreen is down 4.60% while the S&P 500 is down .15%. Year-to-date, Walgreen is up 3.72% while the S&P 500 is up 14.43%. Over the past calendar year, Walgreen is up 5.38% while the S&P 500 is up 20.94%. When you look at three-year returns, Walgreen is down 8.50% while the S&P 500 is up 37.58%.

At $33.33, Walgreen is trading $1.59 lower than its 50-day SMA of $34.92. It’s trading $1.36 lower than its 100-day SMA of $34.69. It’s only trading $.42 lower than its 200-day SMA of $33.75.

E = Earnings And Revenue Have Been Impressive  

The consistent annual revenue growth that Walgreen has seen over the past five years is a great sign.

      2008       2009       2010       2011       2012
Revenue ($)in billions

59.03

63.34

67.42

72.18

71.63

Diluted EPS ($)

2.17

2.02

2.12

2.94

2.42

 

Quarterly revenue and earnings have been steady.

     8/2011      11/2011      2/2012      5/2012      8/2012
Revenue ($)in billions

17.97

18.16

18.65

17.75

17.07

Diluted EPS ($)

.87

.63

.78

.62

.39

 

T = Trends Support The Industry

Walgreen is one of the most recession-proof stocks you can own. The same can be said for CVS. While both stocks were hit during the Financial Crisis in 2008, they weren’t hit as hard as most stocks. They dropped almost the same amount as Procter & Gamble (NYSE:PG), which is arguably the most recession-proof stock in existence.

Conclusion

Walgreen pays a good dividend and has a Forward P/E of 9.12. This is a stock that has rewarded investors for decades. While the last 12 years haven’t been nearly as impressive as prior years, owning a safe dividend-paying stock is always a nice addition to any portfolio.

Based on all the factors listed above, Walgreens is an OUTPERFORM.

Using a solid investing framework such as this can help improve your stock-picking skills. Don’t waste another minute — click here and get our CHEAT SHEET stock picks now.