Retail Pharmacies Decline
The retail pharmacies/drug stores have hit fresh 52 weeks
lows recently as consumer strength is questioned by investors as job losses
mount. Walgreens and CVS Pharmacy are still growing in revenue and earnings but
the stocks continue to fall.
Walgreen Co (NYSE: WAG)
Walgreens
is seeing 9% revenue growth this year compared to the last fiscal year with 8%
earnings growth for the same period. The stock’s price to earnings ratio is 13
which is slightly high for the growth of the company. But any additional significant
decline in the stock price will put the stock into a favorable position.
The company
did miss its May 2008 earnings forecast by 2% and has seen its current quarter
earnings expectations reduced in the last 7 days. The reduction was from 51 cents
to 48 cents.
But overall the fundamentals are
not poor as consumer will still purchase prescription drugs even during a
downturn. If the price to earnings ratio drops below 8, you could purchase
shares for a long term hold and collect the 1.5% dividend that the company pays
out.
CVS Caremark Co (NYSE: CVS)
Likewise, CVS
Caremark is currently anticipated to increase yearly revenue 13% and see yearly
earnings grow 28.5%. The price to earnings ratio for CVS is more appealing at 16
which is significantly lower than the earnings growth rate.
The company
is currently attempting to stop the sale of Longs Drug Store to Walgreens on
anti-trust grounds. If they are successful in keeping the two companies
separate, their national position will be stronger and that should benefit the
stock.