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Retail Pharmacies Decline

Oct 03 2008

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.

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