As had been predicted by the great Aristotle (he of The Motley Fool variety), Walgreen
Recently, Walgreen reported fiscal 2010 first quarter earnings of $0.49 a share, a 19.5% increase from the year-ago period. Also impressive was the sales increase of 9.5%. This performance was aided by the 5.4 million flu shots the company administered during the flu season. After all that, the company now trades hands at 17.5 times earnings.
Look past the quarterly numbers, however, and you'll see a hoard of marauders just chomping at the bit to take away market share from Walgreen's pharmacies. Besides competing with drugstore chains CVS Caremark
In order to differentiate itself from its competition, Walgreen has been offering a more comprehensive health-care experience for its customers through its Take Care Clinic. Instead of just providing drugs and convenience items, select Walgreen locations now offer a package of health-care services. So far, the results are encouraging, as evidenced by the 5.4 million flu shots administered last quarter. Unfortunately for Walgreen, Wal-Mart and Target have added similar clinics to some of their stores and will likely add more in the future if they prove to be profitable. All this competition will cut prices to the, um, bone.
Despite Walgreen's recent success, investors should be wary of its long-term outlook. Competition will continue to be fierce and will likely only intensify. As a buy-and-hold investor, I'm worried enough about the competitive landscape to vaccinate myself against drugstore chains like Walgreen.
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Gerard Torres does not own shares in any of the companies mentioned in this article. Wal-Mart is a Motley Fool Inside Value recommendation. MedcoHealth Solutions is a Motley Fool Stock Advisor pick. The Fool disclosure policy may cause side effects such as transparency, enlightenment, and explosive disclosure.